Product recall uncertainty for VW

It is shaping up to be one of the most expensive product recalls in history but insurance experts say Volkswagen is unlikely to be covered.

Volkswagen has conceded to installing a device into diesel-engine cars that hides true emission levels during testing. The manufacturer says the device was installed in 11 million vehicles.

Discussing the likely response from the company’s insurance policy, LMI Group Founder Professor Allan Manning says that although Volkswagen would almost certainly have extensive product recall cover, a standard policy would be unlikely to respond to this set of circumstances.

“Product recall policies typically have to be triggered by injury or damage, there are specific exclusions in them all, but no policy covers a deliberate act,” Manning says.

“There is an exclusion in all product recall policies to say that if any person in the organisation had reasonable knowledge of the problem before the policy started, then there is no cover. When the incident is discovered, you have to immediately notify the insurer.” [Click to tweet]

With Volkswagen admitting to knowledge of misconduct, Manning says it is unlikely the company will be able to recover losses relating to recall costs.

“If they have known for a while, and haven’t acted upon that knowledge or tried to mitigate their potential loss, then I can’t see cover applying in this case. Their lawyers will be having a field day,” Manning says.

“But when you get to an account of this size, you’re not going to have an off-the-shelf cover. A lot of these major corporations have very bespoke wordings that are designed to protect the balance sheet of the company.”

“They could well have policies that we’ve never seen,” he adds.

Volkswagen shares have dropped by almost 35% since the revelation last week, draining $39 billion from its market value.

Former Volkswagen chief executive Martin Winterkorn, who resigned last week, will be investigated with the intention of discerning who was responsible for the intentional misconduct performed by the company.

“As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group,” Winterkorn says.

“I am doing this in the interests of the company even though I am not aware of any wrong doing on my part.”

“I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group,” he adds.