MINISTRY OF FINANCE AMENDS PRODUCT LIABILITY INSURANCE POLICY

03/01/1999

---

To protect the rights and interests of the public and to uphold the Consumer Protection Law (CPL), the Ministry of Finance (MOF) urged that the non-file insurance industry review and adjust policy clauses and rates, with particular attention to the clauses and rates of product liability insurance policies, so as to ensure swift, appropriate protection for businesses and consumers. As a result, a newly amended product liability policy took effect on 1 January 1999.

The original product liability policy was introduced on 1 May 1979, but subscriptions never reached any significant proportions. Premium revenues for the most recent three years were only NT$750 million or so.

Major contents of the amendment include the following:

Damage caused by some products can occur extremely slowly. To avoid possible disputes over whether the time of damage falls inside the insured period, the policy is changed from the original accident basis to a claim basis: i.e. whether the time the insured receives a request for compensation from a third party falls within the insurance period. If the insured files a claim with the insurer prior to expiry of the policy, the insurer should bear responsibility for compensation.

The original product liability policy only covered liability arising from defects in manufacturing; defects in product design or instructions fell outside the scope of coverage. With the enactment of the CPL, however, business operators must now take responsibility for defective products without regard to the kind of defect. Furthermore, it is often difficult to draw sensible conclusions when distinguishing between different kinds of defects. Therefore, to avoid dissension over claim settlement caused by inability to distinguish between kinds of defects, the aforementioned non-coverage clauses are deleted.

An exclusion clause stipulating non-coverage of damages due to failure of the product to achieve its anticipated efficacy is added based on reference to similar policies overseas.

Since today's product sales and marketing regions may be multinational or global in scope, difficulties may arise with regard to response to litigation in various jurisdictions. Settlement costs may also vary from region to region. The amendment therefore adds restrictions regarding applicable laws as well as regional restrictions to allow for separate prescription of rates for different sales regions.

One occurrence is defined: deductibles will be deducted only once for multiple homogeneous claims so as to protect the insured.

If simultaneous bodily injury or property damages occur, the company's maximum liability for compensation is limited in each occurrence to the amounts insured for bodily injury and property damage in each occurrence in the insurance contract, and the limits on all other kinds of coverage should still apply. This clause is intended to avert disputes by clarifying the distinction between the amounts insured for different kinds of coverage, and to facilitate computerization and reinsurance operations.

The means of settling claims under conditions of multiple insurance or other coincident coverage is specified: responsibility for payment should be proportionate to the amounts of benefits payable rather than to the insured amounts as in the past.

The insured amounts for product liability insurance are as follows:

Bodily injury or death per person: NT$1 million to NT$3 million.

Bodily injury or death per accident: NT$4 million to NT$12 million.

Cumulative coverage during the insured period: NT$10 million to NT$30 million.

Product liability insurance rates:

A policy of deregulation is adopted. Insurance rates should be separately determined by insurers based on product nature, usage life, sales region, sales forecasts, records of past losses, and other data.