Suppliers in the automotive industry are under increasing pressure. From recalls and product liability to delivery disruptions, the potential risks are numerous and costly. Without adequate insurance, the economic risks can be high. Therefore, insurance is not just a “nice to have”, but a central component of corporate risk management.
Various liability risks
Suppliers are regularly held liable for damages on various legal grounds. Suppliers are liable in tort for damages caused by their products, for example in the case of third-party recalls. They are also liable under product liability law (Produkthaftungsgesetz) for personal injury and property damage caused by defective products. Furthermore, suppliers are often held contractually liable if they breach their obligations to customers. These risks are manifold and exacerbated by extensive customer specifications.
Customer specifications & the supplier’s “sandwich position”
Insurance-related requirements are not uncommon in customer contracts, which is an important consideration for businesses to take into account. However, these requirements are often unclear, leading to uncertainty and misunderstandings regarding liability and coverage. For example, some contracts require suppliers to provide ‘adequate insurance coverage’ without specifying what constitutes ‘adequate’ coverage. Conversely, other contracts specify particular policies or minimum coverage amounts that may not be suited to the specific supply relationship between the contracting parties. The situation becomes particularly problematic when suppliers have to bear excessive liability risks, while additional contractual risks arise if insurance requirements under the contract are not fully met. This ‘sandwich position’ can quickly become a financial minefield for the supplier. This makes it all the more important to compare the insurance terms and conditions with the contractual requirements set by the customer.
Liability & coverage
Insurance is a key instrument for achieving financial resilience, but it does not negate liability. This means that anyone who is liable under contract or by law remains liable in principle, even if insurance exists. The policy usually only covers the financial risk, and only up to the limit specified in the insurance contract.
The issue of product recalls regularly highlights a critical point: the contractual liability risks to which a company is exposed (e.g. from customer contracts) and its actual insurance coverage (from the policy) do not align in key areas. For example the term ‘recall’ is often defined differently. The result is that there is a risk of significant gaps in coverage. Therefore, it is essential that customer contracts and insurance policies are carefully coordinated. While complete alignment between liability and coverage is rarely achievable in practice, the closer they are linked, the more effectively risks can be managed and financial burdens avoided.
Conclusion
Insurance and coverage issues are not just administrative matters; they are important tools in risk management. Those who manage their contracts and policies as closely as possible, including with the help of brokers, reduce their liability risk and strengthen their operational stability and market position.
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