Phatboy Motorcycles, Inc., a motorcycle manufacturer, included the following note in its annual report: The Company self-insures

Question:

Phatboy Motorcycles, Inc., a motorcycle manufacturer, included the following note in its annual report:
The Company self-insures its product liability losses in Canada up to $2.5 million. Catastrophic coverage is maintained for individual claims in excess of $2.5 million up to $25 million.
1. Why are product liability losses considered ?
2. How can a contingent liability become a real liability for Phatboy Motorcycles?
Contingent liabilities
A contingent liability is an obligation of business related to an uncertain future event. The business must record it in its financial statements if the amount can be reliably estimated and it is probable that amount will be paid by business as a...