A 3D printer at the new Dassault Systemes Innovation Center at Wichita State Matt LaWell, IndustryWeek

A 3-D printer at the new Dassault Systemes Innovation Center at Wichita State University.

What You Need to Know About 3-D Printing and Insurance

Commercial general liability insurance is normally enough to protect companies against liability for an injury or damage to persons or property of third parties, but there may be tech exclusions, including for cyber-related losses in the event that an error in the embedded software caused a defective product.

Although 3-D printing has been around since the 1980s, its tremendous growth in commercial and private applications in recent years may leave some companies exposed to new liability, including intellectual property claims and product liability claims, among others. Understanding these risks and how to protect your company is essential if your company utilizes or intends to expand into 3-D printing technology. In our previous two articles in this series, we provided an overview of 3-D printing and some of the potential liability and risks associated with it.  In this final article, we discuss how companies can protect themselves from these potential risks while staying on the cutting edge of 3-D printing technology.

Potential Insurance Implications

As discussed in the previous two articles in this series, two areas in which liability exposure may arise from 3-D printing involve product liability and intellectual property. As case law is still developing and the full extent of exposure on these issues is still unknown, companies should review their insurance portfolios to make sure that they are covered against these new potential liabilities.

Coverage for Product Liability

The risk of liability to third parties that arises from 3-D printed products is a primary concern for companies engaged in 3-D printing.  Companies should review their existing general liability policies to make sure that the policies cover claims arising from their 3-D printed products or product components. Commercial general liability insurance protects companies against liability for an injury or damage to persons or property of third parties allegedly caused by products manufactured, sold, handled, distributed, or disposed of by the policyholder, including coverage for defense costs incurred by the policyholder while defending against lawsuits. 

Coverage under general liability policies, however, is subject to policy exclusions that could either limit or preclude coverage for claims arising from 3-D printing. For example, there may be an exclusion for cyber-related losses in the event that an error in the embedded software caused a defective product. A careful review of your entire policy is important.

Companies that supply the designs used by 3-D printers should also take a careful look at their insurance to make sure they do not have any gaps in coverage. Traditional product liability coverage is typically tied to products manufactured, sold, handled, distributed, or disposed of by the policyholder and may not cover distribution of designs that others use, if the resulting product is alleged to have a design defect.

Companies should also consider obtaining product recall insurance to protect against liability resulting from faulty design plans and defective materials that lead to a product recall. 

Coverage for Intellectual Property

Intellectual property issues are another area of concern for companies using 3-D printers. Because commercial general liability policies typically exclude coverage for intellectual property claims (outside the scope of advertising injuries), companies should consider specialized intellectual property coverage. This insurance covers defense costs in the event the company is sued, but can also include “enforcement” or “pursuit” coverage to assist the company in pursuing infringers.

Coverage for Other Potential Risks and Liabilities

In addition to product liability and intellectual property liability risks, several other potential risks and liabilities may result from the use of 3-D printing technology and should also be considered when a company reviews its existing insurance coverage. These include, but are not limited to:

Technology Errors and Omissions: 3-D printing raises new issues involving software malfunctions and human error in using 3-D software.  Digital 3-D designs can be distributed around the world and interpreted by a wide array of printers with different configurations and calibrations. Product malfunctions or business disruption to others may result. It remains to be seen whether standard insurance policies will cover claims arising from 3-D printing software, especially where these designs can be altered and are difficult to trace to establish liability. Errors and omissions liability coverage can protect a company against damages it must pay due to such loss resulting from its software.

Environmental Liabilities: The exhaust, housing, and disposal of materials used by 3-D printers raise questions of potential environmental liabilities. Companies should study their insurance coverage to make sure that a pollution exclusion in their general liability policies does not exclude coverage for such risks.

Equipment Breakdown and Business Interruption Losses: Equipment breakdown can be costly. Companies should make sure that repairs or replacement of their 3-D printers are covered under their property policy’s coverage for equipment breakdown and, if so, that it has sufficient limits to cover such costs. Separate equipment breakdown insurance may be necessary. If a 3-D printer does break down, any delay in repair or replacement of the printer may result in an inability to manufacture that part or product for an extended period. Business interruption insurance can help cover this gap by protecting against lost or reduced earnings in the event a company cannot operate, or operate at full capacity, after a covered loss.

Data Breach Losses and Cyberattacks: With the use of 3-D printing comes the risks associated with the virtual world. The 3-D manufacturing process involves software that may be susceptible to external hackers who may steal or alter intellectual property or shut down production. This risk may become a bigger issue for traditional manufacturing companies who historically focused less on cybersecurity threats. To protect against these cyber threats, companies should review their existing coverage and determine whether additional coverage is needed. Cyber coverage commonly covers network and information security liability and communications and media liability. These policies can also be tailored to cover first-party expenses, including data restoration, business interruption, crisis management and security breach notification expenses.

Insurance Industry Response

The insurance industry is just beginning to recognize the unique risks raised by 3-D printing. As with any new technology or process, the increased prevalence of 3-D printing will lead to more claims arising and issues of liability being resolved in courts across the country. As a result, insurers may start introducing 3-D printing exclusions and limitations in traditional insurance policies as they come to better understand the risks and their exposure. Companies engaged in 3-D printing must be vigilant in reviewing their policies during purchase and renewal for any terms or endorsements that limit their coverage for liability related to 3-D printing.

Conclusion

The future of 3-D printing is limitless. 3-D printers can now work with living tissue, and 4-D printing (3-D printing of objects that can adjust their shape or properties to the environment) is currently being researched. These developments open up a whole new realm of possibilities and liabilities. Courts have yet to address many novel liability issues that may arise from 3-D printing or the availability of insurance coverage for such liability. The use of 3-D printing technology is truly limited only by our imaginations, and the courts and legislation will be struggling to keep pace. Companies using this game-changing technology must stay current with these legal developments and evaluate their insurance coverage to make sure they are properly protected.

Donald J. Friedman is a partner at Perkins Coie LLP.  He has litigated and arbitrated nearly every type of commercial dispute for a wide range of clients, particularly in the telecommunications and high-technology industries. He has also maintained a particular focus on insurance coverage litigation from the first years of his practice. Don began by representing insurance carriers in the 1970s, but since the late 1980s, has exclusively represented policyholders in disputes regarding coverage for contingent business interruption, environmental liability, directors and officers liability, copyright infringement and other claims. 

Christina E. Buschmann is a counsel at Perkins Coie LLP. She focuses her practice on representing corporate policyholders in complex insurance coverage disputes. She has represented policyholders through all stages of litigation and alternative dispute resolution, including pre-suit negotiation through trial.  She has pursued recovery for clients for various losses, including mass tort, product liability, environmental liability, first-party property losses and others. Christina also regularly counsels clients during the purchase and renewal of insurance policies — identifying gaps in coverage and advising how to strengthen existing coverage.

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