Michigan Auto Parts Supplier Insurance: What OEM Contracts Require from Tier Suppliers

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Michigan auto parts supplier insurance has to satisfy two readers: your customers' purchasing terms and a claims adjuster. For a Tier 1, 2 or 3 supplier that means products liability with limits your OEM or Tier 1 will accept (Stellantis publishes $5 million), property coverage for customer-owned tooling, a plan for recall costs your liability policy excludes, and business income for a supply-chain shutdown.

What OEM supplier terms actually require

The Detroit Three publish their production purchasing terms, and they are not identical. Read the version that governs your purchase orders; the summaries below are from the editions we could review.

• Stellantis (FCA US) North America terms, 2022 version. These set minimums of $5 million general liability including products-completed operations and contractual liability, $5 million auto liability and $1 million employer's liability, plus crime coverage including employee theft and all-risk property coverage on tooling, including Stellantis-owned tooling in your care. Stellantis must be an additional insured on a primary and non-contributory basis, you waive subrogation, and you owe 30 days' notice of cancellation. Its global terms add that the required limits do not cap your liability and that you must flow the same requirements down to your own suppliers.
• Ford production terms, July 2021 edition. These do not set dollar limits in the terms themselves. They do make Ford the owner of tooling as soon as it is made and require the supplier to insure that tooling against loss or damage "even if it occurs despite Supplier's exercise of due care." Ford's terms also allow an interim debit of up to 50% of actual recall costs (parts and labor) if Ford determines in good faith that you are likely responsible for part of them and no allocation is agreed within 90 days, with interim debits capped at three times the price paid for the affected parts.
• GM general terms, 2014 edition. These require insurance "in the amounts set forth elsewhere" in the contract rather than fixing limits, and require you to insure your own tooling for its replacement value.

Whatever your customer requires, the practical floor for an established supplier is $1 million per occurrence and $1 million aggregate on primary liability, with an umbrella built up to what your largest customer demands. Many suppliers meet a $5 million requirement with primary plus umbrella, which Stellantis's terms expressly allow. See our commercial umbrella page.

Recall is the exposure your liability policy excludes

The standard ISO general liability form has a specific exclusion for recall of products, work or impaired property. It removes any loss, cost or expense "incurred by you or others" for the withdrawal, recall, inspection, repair, replacement or disposal of your product, or of property that incorporates it, when it is recalled because of a known or suspected defect. The words "or others" are the problem for a supplier: when an OEM charges its recall costs back to you, your general liability policy generally does not pay them.

What the liability policy does cover is bodily injury and damage to other property caused by your part. The cost of pulling the vehicles in for the fix is a separate insurance product:

• Automotive product recall insurance can cover your own recall expenses, recall costs charged by your customer, and in some markets loss of gross profit afterward.
• Product guarantee coverage is available in the automotive recall market for parts that fail to perform as intended even without a safety defect. Not every form offers it.
• Routine warranty chargebacks are generally treated as a cost of doing business. Ask directly whether any recall or guarantee form you are offered responds to them; do not assume.

Federal defect reporting adds urgency. Under NHTSA's rules, when original equipment is installed by more than one vehicle manufacturer, the equipment manufacturer must file the defect report for the equipment (49 CFR 573.3).

Michigan's product liability rules for suppliers

• Three years to sue, no general statute of repose. Michigan gives a plaintiff three years to bring a product liability action (MCL 600.5805). There is no outer cutoff for old products; after a product has been in use for ten years, the plaintiff just loses the benefit of any presumption.
• A presumption for compliance. If, when the part was first sold, the aspect that allegedly caused the harm complied with relevant federal or state safety standards, there is a rebuttable presumption that you are not liable (MCL 600.2946(4)). Noncompliance does not create a presumption of negligence. The presumption is lost if you willfully disregarded actual knowledge of the defect.
• The sophisticated-user defense. Except where a statute or regulation requires a warning, a manufacturer or seller is not liable for failure to warn if the product is provided for use by a sophisticated user (MCL 600.2947(4)). An individual employee without actual knowledge of the hazard is not a sophisticated user.

Customer-owned tooling: the valuation trap

Dies, molds and fixtures owned by your customer and held in your plant are "personal property of others" on a standard commercial property form. On ISO's Building and Personal Property form, that property is covered only at your premises or within 100 feet, and the replacement cost option does not apply to property of others unless the declarations add an extension for it. Without its own scheduled limit, property of others gets only a small coverage extension. Now reread Ford's terms: you must insure that tooling even when the loss was not your fault. A legal-liability-only approach does not match that promise. Tooling sitting at your toolmaker or a sub-tier supplier is off your premises and needs its own coverage.

Supply chain and export exposures

• Contingent business income. If a fire at your resin or steel supplier stops your line, dependent property coverage can respond — but only for direct physical damage at the dependent location. A supplier's bankruptcy, a strike or a tariff generally does not trigger it. IATF 16949 already asks you to plan for supply interruptions; your insurance should match the plan.
• Suits outside North America. The standard liability form covers injury anywhere in the world from products you made or sold in the U.S., Puerto Rico or Canada, but only if the suit on the merits is brought in those places, or the insurer agrees to settle. A suit filed in Mexico or Germany needs a foreign liability policy.

Frequently Asked Questions

What insurance do OEMs require from Tier 2 suppliers?

It depends on the customer and the contract. Stellantis's North America terms publish minimums of $5 million general liability, $5 million auto liability and $1 million employer's liability, with additional insured status, primary and non-contributory wording and a waiver of subrogation, and require suppliers to flow those requirements down. Ford's 2021 and GM's 2014 terms leave limits to the contract. Tier 1s commonly pass OEM requirements down to their own suppliers.

Does general liability cover a product recall?

No. The standard general liability form excludes the cost of withdrawing, recalling, inspecting, repairing or replacing your product or property that incorporates it, whether you or someone else incurs the cost. It can still cover injury or damage your product causes. Recall costs require a separate product recall policy.

Who insures customer-owned tooling at a supplier's plant?

Under the Ford, Stellantis and GM terms we reviewed, the supplier does. Ford's 2021 terms require the supplier to insure Ford-owned tooling against loss even if it happens despite the supplier's due care. On a standard property form, replacement cost does not apply to others' property unless an extension is added, so check how your policy values it.

How long can someone sue over a defective auto part in Michigan?

Michigan's limitation period for product liability actions is three years. Michigan has no general product liability statute of repose, so an old part can still generate a claim; after ten years of use, the plaintiff loses the benefit of any legal presumptions.

Is product recall insurance only for safety defects?

Not always. Automotive recall markets offer product safety coverage for parts that could cause injury or damage and, in some forms, product guarantee coverage for parts that fail to perform as intended. Coverage for routine warranty chargebacks is not standard, so ask what each form covers.

The bottom line

A supplier's insurance program should be written against its customer terms, not a generic manufacturing application. The questions that decide it are whether your limits and endorsements match each purchase order, how your tooling is valued, and what pays when an OEM charges a recall back to you.

We work best with established Michigan suppliers — production payroll, an IATF-certified or OEM-approved plant, customer purchase orders in hand, and a few years of loss runs. Send us your current declarations pages, your schedule of forms, your largest customers' insurance requirements and your last two loss runs, and we will map your coverage against your contracts before we talk about price. J. Jacobs & Associates has insured Michigan manufacturers for more than forty years, and as an independent agency we take your program to multiple preferred commercial carriers and specialty recall markets. Call (248) 693-6455 or request a manufacturing review. For shop-level exposures, see our guides to machine shop and tool and die insurance and plastics and injection molding insurance.