Common Exclusions & Policy Gaps

1) Wear & Tear vs Sudden Breakdown

Property and machinery breakdown policies typically cover sudden and unforeseen damage. Gradual deterioration, corrosion, fatigue and poor maintenance are usually excluded.

• Age-related component failure
• Lack of servicing or preventative maintenance
• Gradual electrical degradation

Proper maintenance documentation is critical to avoid disputes over whether damage was “sudden”.

2) Pure Financial Loss vs Property Damage

Products liability generally responds to injury or property damage. Pure financial loss (without physical damage) is often excluded unless covered under professional indemnity.

• Missed delivery penalties
• Loss of production at customer site without physical damage
• Specification disputes causing commercial loss

Many electronics manufacturers assume product liability covers these scenarios — it often does not.

3) Contractual Liability & Fitness for Purpose

Contracts can expand your liability beyond negligence. Insurance policies usually exclude liabilities assumed purely under contract.

• “Fitness for purpose” guarantees
• Uncapped indemnity clauses
• Liquidated damages and penalty clauses

If your contract goes beyond what you would be liable for at law, the policy may not respond unless specifically negotiated.

4) Cyber Exclusions in Traditional Policies

Many property and liability policies now contain cyber exclusions. This means losses triggered by cyber events may not be covered unless you hold standalone cyber insurance.

• Ransomware-induced production shutdown
• Malicious firmware alteration
• Data breach leading to third-party claims

Without cyber cover, these losses may sit outside traditional policies entirely.

5) Recall Costs vs Liability Claims

Products liability does not automatically cover recall costs. Unless a recall extension or standalone recall policy is in place, the cost of withdrawing and replacing products may not be insured.

• Notification and logistics costs
• Replacement and rework expenses
• Crisis management services

6) Underinsured Business Interruption

One of the most common gaps is insufficient business interruption cover.

• Indemnity period too short
• Gross profit under-declared
• No contingent supplier extension

Electronics manufacturing often involves long equipment lead times and requalification periods.

7) Territorial & Jurisdictional Limits

Exporting electronics globally introduces jurisdiction risk. US and Canada exposures are often restricted or require higher limits.

• US product liability litigation severity
• Contractual governing law clauses
• Territorial limitations in policy wording