Product defect creates safety risk
A manufacturer supplying cast metal engine parts to some of the world’s largest automotive producers was informed by a customer that they would be recalling 100,000 vehicles due to an issue with the cylinder heads they provide.
It was found that hairline cracks were present in some products already in the field, having been integrated into OEM vehicles. On review, the issue occurred as a result of the product being cooled too quickly after casting.
Though there were no reported accidents involving the affected vehicles, the defect created a potential safety issue that resulted in a requirement to recall and replace all affected parts.
The insurance provided a comprehensive solution to assist in the management of the recall process from first identification of the defect, utilising the crisis response fees available. This focused on coordinating customer communication alongside the insured’s traceability and root cause analysis.
The manufacturer was forced to replace the affected parts, resulting in a cost of $2 million, with severe disruption to their manufacturing plant and additional resource allocated to manufacture of non-defective components. The OEM who the product was supplied to sought to recover all costs incurred to carry out the recall, along with labour costs to install replacement product.
In addition to the insured and the customers direct recall expenses, all third party financial damages incurred by the customer that the insured was legally liable to pay would be indemnified. Within the ‘replacement expenses coverage’, the insured would be covered for costs required to produce equivalent non-defective product and reinstall them into affected vehicles. In the event this was not possible, this could be completed via the issuance of customer credits.
*All names, characters, and incidents portrayed in the case studies are fictitious. No identification with actual persons (living or deceased), places, buildings, companies, entities or products is intended or should be inferred.
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