The insured is a contract bottling company. That means they take other parties’ manufactured product and perform, under contract, the bottling and labelling of that product.
Once the product has been bottled, labelled and packaged it is returned to their customer (the manufacturer of the product). All of the insured's customers are based in New Zealand.
In this example, after the product has been returned to their customer (the manufacturer) it was sold to an overseas buyer. The overseas buyer has picked up on an error in the labelling.
Essentially, the insured has mislabelled the product i.e. they put the orange flavoured labels onto the grapefruit flavoured product. The overseas buyer therefore cannot sell the product and has incurred costs in determining which batches are affected before disposing of the product.
The overseas buyer has held the NZ manufacturer liable for their costs which amount to around $2,000 NZD (this includes $900 of mislabelled product that was disposed of).
The NZ manufacturer has not made an insurance claim as they deny liability. They have instead passed their buyers' costs onto our insured.
Our insured's insurance company has declined the claim as their GL policy only has a NZ Territory/Jurisdiction. The insured argues that their contract of service is with a NZ based company and not with an overseas company. Indeed, they have no control over where the product ends up.
Where does liability likely rest and is the insured's insurance company right to decline the claim on the reason they provided?
Crossley Gates replies:
Provided indemnity is otherwise available for the labelling error, the property damage occurred in New Zealand so, assuming the NZ manufacturer made no changes to the insured's work prior to export, there would seem to be cover under the policy.