Batch Clause

What is a lot clause?

Batch Clause is a product liability insurance policy provision that limits coverage to claims arising from defective products of a specific production run. A batch clause therefore only covers items produced during a specific production cycle over a specific period of time, called a “batch”.

Understanding the Batch Clause

Professional liability policies may have a bundle clause that limits the amount of deductible that can apply to an event, such as a defective product, regardless of the number of claims filed for damage caused by that product. This saves the policyholder from having to consider each claim as a separate event. This will only be the case if the wording of the policy indicates that the deductible is calculated “per occurrence”. If the deductible is on a “per claim” basis, it applies to each claim made, meaning the insured will have to pay more money if multiple claims are made.

In some states, the laws do not allow multiple claims to be treated as part of the same event. This may lead to the insured ultimately not being covered depending on the amount of the deductible versus the amount of the claim. Companies can get around this problem by asking for an annual global deductible, which limits the total amount of deductible that the insured will have to pay in a given period.

In the event of a claim, insurance companies and policyholders may argue over what constitutes a “prize”. Indeed, the insurer wishes to consider that a batch falls within a short period, which increases the number of periods open to the deductible. In order to avoid litigation related to this type of argument, insureds should ensure that the wording of the policy carefully defines what is considered a prize and what is considered an event.

Here is a typical batch clause:

“It is hereby declared and agreed that all claims made against the Insured arising out of the same cause shall be deemed to be a single accident and as having been made against the Insured during the period of insurance during which the first claim was made against the Insured or the first notice given by the Insured to the Insurer to the effect that there would be such a possibility of a claim being made against the Insured.”

This wording leaves a lot of room for interpretation and grouped claims can be complex, involving a series of claims that may or may not be related.