A small product company receives a demand letter. Somewhere in a warehouse there is a policy binder, purchased two years earlier, filed and forgotten. The founder’s first assumption is that the policy handles it. Steven Capuano’s observation, after years around product development and the paperwork that surrounds it, is that the policy is only one of four documents in play, and it is rarely the one that decides the outcome.
Product liability is not a single protection. It is a chain of documents that either connects or does not. The policy, the certificate of insurance, the indemnification language in the supply agreement, and the contract with whoever sells the product all reference one another. When they line up, the risk lands where the parties intended. When one link points somewhere unexpected, the founder’s company absorbs the entire exposure, usually without knowing it until the letter arrives.
The Policy Is a Document About Exclusions, Not Coverage
Founders read the declarations page, see the limits, and stop. Capuano argues the useful reading starts after that. The declarations page states what was bought. The exclusions and definitions state what was not, and that is where the actual scope of the document lives.
The distinctions that matter to a product company are specific. Whether the policy is written on an occurrence basis or a claims-made basis determines whether an incident that surfaces years later is covered at all. Whether coverage extends to products sold before the policy period began determines whether earlier inventory is protected. Whether the definition of covered products matches what the company currently sells determines whether a line extension launched last quarter falls inside or outside the document. A company that added a product category and never updated the description of operations may be paying premiums on a policy that does not describe its business.
The Certificate of Insurance Is Not Proof of Anything by Itself
The certificate of insurance is the document that circulates. Retailers demand it, distributors file it, and founders treat producing one as evidence the matter is handled. It is a summary, issued for convenience, and it does not amend the policy it summarizes.
Two lines on it carry real weight. The first is whether the counterparty is listed as an additional insured, which requires an actual endorsement on the policy rather than a line typed onto a certificate. The second is whether the coverage is primary and non-contributory, which determines whose insurer responds first rather than both arguing while the claim sits. Capuano’s point is that a certificate showing what a contract requires, backed by a policy that contains no matching endorsement, is a document that creates confidence without creating coverage.
A certificate of insurance describes a policy. It does not change one. The difference is invisible until the day it is the only thing that matters.
Indemnification Language Moves the Risk Before Anyone Is Injured
The third document is the supply or manufacturing agreement, and its indemnification clause determines the direction liability travels between the company and the factory that builds the product. The clause can run one way, both ways, or be scoped so narrowly that it covers almost nothing.
Capuano’s practical test is to read the clause against realistic failure modes rather than abstract ones. If the manufacturer deviates from the approved specification, who defends the claim? If the design itself is the problem, does the manufacturer’s indemnity still apply, or does it exclude design defects entirely? Does the obligation include defense costs, which often exceed the settlement, or only the judgment? And does the counterparty carry enough coverage for the indemnity to mean anything in practice? An indemnity from a supplier with no assets and minimal coverage is a paragraph, not a protection.
Records Are the Document That Turns a Recall Into a Contained Event
The final category is the one founders build only after they need it. Lot coding, production records tied to specific date ranges, incoming component documentation, and complaint logs are what allow a company to say precisely which units are affected when something goes wrong.
Without that documentation, the honest answer is all of them. Capuano has seen the difference play out in scope: a company with traceable lot records recalls one production run, while a company without them faces every unit ever shipped, because it cannot document any basis for a narrower boundary. The same event produces two outcomes separated by an order of magnitude, and the variable is a document system that costs very little to maintain and cannot be created retroactively.
The Annual Review That Almost Nobody Does
The habit Capuano recommends takes an afternoon once a year. Pull the policy, the current certificates, and every supply agreement in force. Confirm that the products described in the policy match the products actually being sold. Confirm that every additional insured named on a certificate appears as an endorsement on the policy. Confirm that the indemnification language in each supply agreement still reflects how the relationship actually works, rather than how it worked when the contract was signed.
These documents were all written at different times by different parties with different incentives, and nothing forces them to stay aligned as a company changes. They drift quietly. The afternoon spent reading them together is the only moment anyone checks whether the chain still connects, and it is considerably cheaper than finding out the way most companies find out.
Published originally on — https://geekinsider.com/steven-capuano-on-the-insurance-documents-that-decide-who-pays-when-a-product-goes-wrong/
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