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Know benefits of vendor’s endorsement during product dispute

January 1, 2009 By and    

In a long legal battle that is still far from over, an Illinois Court of Appeals decision found coverage under a vendor’s endorsement in St. Paul Insurance v. Antel Corp. The purpose of a vendor’s endorsement is to provide products liability coverage to vendors that sell or distribute a product.

In this case, the product was sold by the defendant and used in an Illinois chemical processing plant, resulting in an explosion and causing a death and separate personal injury.

The explosion and fire occurred in 1988 at a Unocal chemical processing plant. Antel Corp., the defendant, sold the product to Unocal. It was designed to automate the blending of products in a vessel that would ultimately make paint and other commodities. It converted manually operated processes into computer-operated processes. One process was preheating certain chemicals in the vessel. The explosion occurred because the vessel was heated when a chemical was added.

Allegation of negligence
At the time of the appeal, the only claim that survived was of negligence. The trial court found that there was no defect in the product sold. The product allowed for a manual override of the heat-setting function of the computer-operated process. This was the allegation of negligence that remained.

The importance of this case to the reader is the extension of coverage to Antel as a direct distributor or manufacturer’s representative of the product sold under the manufacturer’s liability insurance policy.

The insurance company for the product manufacturer sought to avoid the vendor’s endorsement. It argued that Antel was only a manufacturer’s representative because it only presented the product, described its capabilities and sent a price quotation to the customer. It did not sell directly to the customer. The product came directly from the manufacturer when the customer purchased it. The insurer claimed that to get coverage under the vendor’s endorsement Antel needed to be a distributor, which would require it to sell the product to the customer in addition to presenting it, describing its capabilities and giving a price quote.

Whether distributing or acting as a manufacturer’s representative, Antel received a 15 percent commission on each sale. The appellate court determined there was little distinction between a distributor that directly sells and a manufacturer’s representative, and Antel would be covered under the vendor’s endorsement.

Part of a larger process
Next, the insurer argued that an exclusion under the manufacturer’s insurance policy for the product’s incorporation into another system would prevent coverage.

However, the court of appeals noted that the product was designed for use as a component in a larger process. The court of appeals concluded that under the insurer’s reasoning there could never be coverage under the vendor’s endorsement. That would make the insurance coverage under the vendor’s endorsement illusory and as a result the court would not apply that exclusion to avoid coverage.

The importance of the case to the reader cannot be understated. If you are faced with a legal dispute over a product that you sold or distributed, you should always look to find insurance coverage under the manufacturer’s vendor’s endorsement. This may be a significant benefit to you in providing additional insurance limits in the face of a catastrophic event.

John V. McCoy is president of McCoy & Hofbauer, S.C. and specializes in the representation of propane companies. He can be reached at 800-599-8300 or jmccoy@mh-law.us.

 

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