As with mechanical breakdown it is not the purpose of an ARPI policy to cover a manufacturer for loss occasioned by its own actions in processing raw materials to a finished state. The policy does not cover damage caused on the production line. Therefore, it is usual to find in ARPI policies an exclusion stating that “damage resulting from stock or materials undergoing any process of production, packing treatment, commissioning test or testing is not covered”. It is not uncommon for the exclusion again to include a proviso specifying that a policy will cover resulting damage.

This again ties in with the purpose of an ARPI policy which is to cover physical damage by external factors to existing property. It is not intended to be a warranty against defective methods of production or a guarantee of the assured’s manufactured product. Certainly, some insurers offer extensions to the policy covering damage to stock and general merchandise, but as an additional cover in the same way that business interruption (as a form of consequential loss) is frequently covered for the payment of additional premium. As seen in some of my other articles, this particular exclusion uses the word “stock” which is defined by the Oxford English Dictionary as meaning:

1. A quantity of something specified (whether material or immaterial) accumulated for further use: a store or provision to be drawn upon as occasion requires.

2. The aggregate of goods, or of some specified kind of goods, which a trader has on hand as a provision for possible future use of customers.”

This definition appears to suggest stock has a certain fixed quality and is not a substance which is changing its composition. Therefore, it is important that any exclusion should also refer to materials or raw materials which go to create the stock.

If the exclusion is drafted carefully, it should cover a situation where, for example, iron filings are mixed into a food product such as a cake mixture by a manufacturer of Christmas cakes. Clearly, the dropping of the iron filings into the mixture was an accidental event, but it occurred during the production process and should be excluded.

It is also quite common to have a separate exclusion, or as part of the general processing exclusion, excluding damage resulting from the insured property undergoing any heating process or any process involving the application of heat. Provided that general processing exclusion is wide enough it would probably include heating processes in any event.