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PRODUCT LIABILITY VS PROFESSIONAL INDEMNITY — WHAT’S THE DIFFERENCE?
Why This Comparison Matters
Engineering and manufacturing businesses often sit in the “grey area” between making a product and providing a professional service. If you manufacture components, assemble products, provide design input, modify drawings, specify tolerances, advise on materials, or sign off prototypes, you may need both Product Liability and Professional Indemnity.
The problem is that claims don’t arrive labelled as “PL” or “PI”. A customer may allege defective parts, negligent design, breach of contract, or failure to meet a specification — sometimes all at once. Understanding the difference helps you avoid coverage gaps and structure your insurance around how you actually operate.
This guide explains the practical differences, typical claim scenarios, and how insurers usually respond in the engineering/manufacturing context.
Product Liability vs Professional Indemnity — Simple Definitions
Here’s the simplest way to think about it:
- Product Liability (PL) is mainly about injury and property damage caused by products you make, supply or distribute.
- Professional Indemnity (PI) is mainly about professional negligence — design mistakes, specification errors, advice, or services that cause a client financial loss or require corrective work.
While that’s the headline difference, real-world manufacturing claims often blend product and professional allegations. The best insurance programme anticipates that.
What Product Liability Typically Covers
Product liability usually responds when a product or component causes:
- Third-party bodily injury (someone is hurt)
- Third-party property damage (something is damaged)
Example: a manufactured component fails and damages a customer’s machine, or causes injury when installed and used.
- Often includes: legal defence costs (subject to policy)
- Common limitations: “your product/your work” exclusions; pure financial loss; contract penalties
- Key underwriting: territories, end-use, safety-critical exposure, claims history
What Professional Indemnity Typically Covers
Professional indemnity usually responds when your professional service causes a client loss, such as:
- Negligent design, drawings, CAD or calculations
- Incorrect specification, tolerances or advice
- Professional services that require rework/rectification
- Errors in project management, engineering consultancy or certification (where relevant)
Example: you advise a material change or tolerance that later causes failure, leading to a dispute or corrective work.
- Key underwriting: scope of services, retroactive date, contracts, turnover split
- Common limitations: exclusions for pure product manufacture; contractual liability beyond negligence
Common Claim Scenarios — Which Policy Responds?
The key question is usually: did the issue cause injury/property damage (more likely PL), or did it arise from design/advice/service negligence (more likely PI)? Sometimes both apply, depending on the allegations and losses.
Below are typical manufacturing scenarios and how they’re commonly treated.
More likely Product Liability (PL)
- Defective component causes damage to other property (e.g., a bearing failure damages machinery)
- Injury caused by product failure (e.g., guard failure, component fracture)
- Faulty assembly leads to damage to a customer’s equipment
- Batch defect causes damage when installed/used
- Supply of incorrect part causes damage due to mismatch
Note: PL may still exclude the cost of replacing your own product, and may focus on damage/injury beyond the product itself.
More likely Professional Indemnity (PI)
- Design miscalculation leads to performance failure and redesign costs
- Incorrect tolerances cause system incompatibility requiring rework
- Wrong material specification results in non-compliance or premature failure
- CAD revision/version control error leads to parts being produced to wrong drawing
- Engineering advice causes the client to incur costs or delays
Note: PI often covers financial losses arising from professional negligence, where PL may not respond.
Scenario that often needs BOTH
Some claims start as a design allegation, then turn into property damage — or vice versa. Example: a design miscalculation causes a component to fail, damages a customer machine, and triggers production downtime. In these cases, correct policy structure and claim handling are vital.
Common Coverage Gaps Manufacturers Need to Watch
The most expensive surprises usually happen when businesses assume one policy covers everything. Here are common gaps we see in engineering/manufacturing programmes:
PL gaps
- Pure financial loss — customer downtime claims with no property damage
- Rectification of your work — re-machining/replacement costs may not be covered
- Contractual penalties — chargebacks, liquidated damages, late delivery penalties
- Recall costs — not always included without specialist extensions
- Territory mismatch — exports and overseas claims require correct jurisdiction cover
PI gaps
- Manufacture-only allegations — PI may not respond if it’s purely a product/workmanship issue
- Retroactive date — design work done before the retro date may be excluded
- Contractual liability — accepting liability beyond negligence can create gaps
- Incorrect business description — if insurers think you are build-to-print but you also design
- Subcontracted design — responsibilities still sit with you unless contracted/insured properly
If you supply OEMs or operate in regulated supply chains, it’s especially important to align policy wording with contract requirements. Insure24 can review typical obligations and recommend a practical solution.
What Insurers Need to Quote PL & PI Correctly
Many underwriting issues occur because the insurer doesn’t understand the true scope of your services. Getting this right can improve pricing and avoid claim disputes later.
- What you make — product types and end-use (including safety-critical applications)
- Territories — UK/EU/Worldwide distribution and jurisdiction expectations
- Design responsibility — build-to-print vs design-and-build vs design input
- Contract values — max contract and largest customer exposure
- Quality controls — ISO certifications, traceability, inspection and calibration
- Claims history — and what changed afterwards
- Key contracts — indemnities, warranties, fitness-for-purpose clauses
Good practice for manufacturers
- Document design sign-off points and version control processes
- Clarify scope in contracts: what you are responsible for vs customer responsibility
- Maintain traceability and QA evidence for batches/lots
- Avoid accepting unlimited liability without review
- Use an insurance broker familiar with supply chain contracts
Insure24 can help translate these operational realities into an insurer-friendly submission.
Why Choose Insure24?
Manufacturers need clarity — not jargon. We help you choose the right mix of PL and PI based on what you actually do, what your contracts demand, and what losses would genuinely hurt your business.
- Specialist manufacturing insurance advice
- Support aligning cover to OEM and contract requirements
- Access to leading UK insurer markets
- Clear explanation of exclusions and realistic expectations
- Fast quotes and straightforward documentation
How to Get the Right Cover
If you’re unsure whether you need product liability, professional indemnity, or both — we’ll help you work it out quickly. The key is mapping real activities and contract responsibilities to the right policies and limits.
- 1. Tell us what you make and whether you provide design/advice
- 2. Confirm where products go (UK/EU/Worldwide) and max contract values
- 3. Share typical customer contract insurance requirements
- 4. We compare insurers and present clear PL/PI options
- 5. Choose cover and we put it on risk quickly
We thought product liability covered everything, but a specification dispute showed us the gap. Insure24 helped us add PI and align our policies with our OEM contracts.
Managing Director, UK Engineering SupplierFREQUENTLY ASKED QUESTIONS
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Do manufacturers need both product liability and professional indemnity?
Many do. If you only manufacture to customer drawings (build-to-print), product liability may be the main need. But if you provide design input, advise on specification/materials, modify drawings, prototype, or sign off engineering decisions, professional indemnity is often important too.
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Which policy covers customer downtime claims?
It depends. If downtime follows insured property damage caused by your product, product liability may respond. If the loss is purely financial and linked to design/advice negligence, PI may be more relevant. Many policies exclude pure financial loss unless specifically covered.
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Does product liability cover rework or replacement of defective parts?
Often not. Product liability is usually focused on injury or damage beyond your product itself. The cost of replacing/remaking your own defective parts or rectifying workmanship may be excluded unless you have specialist extensions.
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What is a retroactive date on PI?
The retroactive date is the date from which your PI policy will cover work performed. If you did design work before the retro date, related claims may not be covered. That’s why continuity and correct retro date selection matter.
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How do OEM contracts affect PL and PI?
OEM contracts often impose warranty and indemnity obligations and specify minimum insurance limits/territories. If your contract pushes liability beyond standard negligence, you may need policy wording review and appropriate limits to avoid uninsured exposures.
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How quickly can Insure24 arrange PL/PI cover?
Many manufacturing risks can be quoted quickly once we have product details, territories, turnover split and clarity on design responsibility. More complex or safety-critical exposures may require additional underwriting review, but we aim to progress matters promptly.