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WHERE MANUFACTURERS GET CAUGHT OUT — INJURY/DAMAGE VS DESIGN/SPEC FINANCIAL LOSS
Why This Difference Matters for Industrial Equipment Manufacturers
Equipment manufacturers often assume “liability insurance is liability insurance”. In reality, two very different types of claim drive real losses: (1) a machine or component causes injury or property damage, and (2) a design, specification, programming or advice issue causes financial loss (rework, rejection, penalties, delay costs, line-down disputes). These are not automatically insured by the same policy.
The gap typically appears when a customer alleges “your design was wrong” or “your tolerances/spec caused our losses” but there’s no physical injury or property damage. That type of claim often points to professional indemnity (PI), not products liability.
This page explains the difference in plain English, shows the common grey areas (rectification, recall, fitness for purpose, contractual liability), and helps you structure an insurance programme that aligns with how manufacturers actually get claims.
Products Liability vs Professional Indemnity: The Simple Definition
Think of products liability as “harm caused by a product” and PI as “loss caused by a professional error”. Both can apply to manufacturers who design, build, integrate and commission equipment.
Products Liability: What It’s Designed For
- Legal liability for third-party injury caused by products you supply
- Legal liability for third-party property damage caused by products you supply
- Defence costs (where included by wording)
- Often attached to public liability or a combined policy (structure varies)
For equipment manufacturers, insurers also care about safety engineering, guarding, end-use sector, and export jurisdictions.
Professional Indemnity (PI): What It’s Designed For
- Claims alleging design/specification errors or advice failures
- Allegations of negligent services: commissioning, programming, testing, validation
- Financial loss suffered by the client (often without injury/damage)
- Defence costs (usually central to PI wordings)
If you provide design, drawings, calculations, control logic, or technical advice, PI is often the policy that responds to “it didn’t work” disputes.
Real-World Claim Scenarios: Which Policy Is More Likely to Respond?
The key question is often: Is there injury or property damage? If yes, products liability is usually the starting point. If the claim is primarily financial loss caused by design/spec/advice, PI is usually the starting point (subject to wording, exclusions and contract terms).
Typically Products Liability-Led (Examples)
- A guarding/interlock failure leads to an operator injury allegation
- A control-panel fault causes fire and damages the customer’s building
- A hydraulic leak causes property damage to the customer’s production line
- A supplied component fails and damages other third-party equipment
These tend to be bodily injury / property damage claims (often with defence costs), but the facts and exclusions still matter.
Typically PI-Led (Examples)
- A tolerance/spec error causes batch rejection and rework costs
- Programming/commissioning error causes line downtime with no physical damage
- Design calculations are wrong and the customer claims delay penalties
- Advice/consultancy leads to the wrong solution and the client claims financial loss
These are commonly framed as negligence in professional services, especially where deliverables include drawings, calculations, code or advice.
The Grey Zone: Rectification, Recall & “Fixing Your Own Work”
- Rectification costs (your cost to repair/replace) are not automatically covered by liability
- Recall is often separate from products liability and trigger-dependent
- Both PL and PI can exclude own workmanship or your own product replacement unless endorsed
- Fitness for purpose / performance guarantees can create exposures beyond standard insurance
If your contracts require “make good” obligations, we’ll help structure the programme so you understand what is realistically insurable and what needs contract management.
Contracts, Consequential Loss & Why Insurance Doesn’t “Follow the PO”
Many manufacturing disputes are contract-led. Customers may claim liquidated damages, line-down costs, and “consequential loss” that aren’t automatically covered by standard liability policies. Insurance responds to defined insuring agreements — not everything a contract demands.
Common Contract Terms That Create Uninsured Exposure
- Unlimited liability clauses (often unrealistic to insure)
- Consequential loss carve-ins and broad “indirect loss” definitions
- Liquidated damages / delay penalties
- Fitness for purpose warranties beyond reasonable care
- Agreement to assume liability you wouldn’t have at law (contractual liability)
A strong insurance programme goes hand-in-hand with contract review: liability caps, exclusions, and clear acceptance criteria reduce claim frequency.
What Underwriters Want to See (PL + PI)
- Clear scope: manufacture only vs design + build vs full turnkey integration
- Documented QA/testing, sign-off, commissioning checklists and change control
- Traceability: serial/batch records, build packs, software version control
- Contract standards: limits, jurisdiction, exclusions of consequential loss
- Claims history and corrective actions (including near misses)
Better information often means cleaner terms, fewer exclusions and less back-and-forth at quotation.
We had products liability but the claim was really about design tolerances and delay costs — no property damage. Insure24 helped us add PI and tighten our contracts. It stopped a “grey area” dispute becoming a balance-sheet problem.
Commercial Director, Industrial Equipment ManufacturerFREQUENTLY ASKED QUESTIONS
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Do industrial equipment manufacturers need both products liability and professional indemnity?
Many do. Products liability is typically for third-party injury/property damage from products supplied. PI is typically for financial loss allegations
arising from design, specification, advice, programming, commissioning or other professional services. If you design and build, both can be relevant.
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If there’s no injury or property damage, will products liability still respond?
Often not. Products liability is generally intended for bodily injury and property damage. Claims that are mainly “it didn’t work” or “you got the design wrong”
are commonly financial loss disputes and may point to PI (subject to wording and exclusions).
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Does professional indemnity cover the cost to replace or rework our own product?
Not automatically. Many PI policies exclude the cost of rectifying your own work/product unless endorsed (and terms vary).
PI is primarily about third-party claims for losses arising from negligence in professional services.
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What’s the difference between product recall and PI?
Recall/rectification cover (where available) is usually about costs to withdraw, repair or replace products already supplied (trigger-dependent).
PI is about allegations of negligent design/specification/advice causing financial loss. They solve different problems and are often separate covers.
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Our customers demand “fitness for purpose” — can insurance cover this?
Insurance typically responds to defined liabilities (e.g., negligence leading to injury/damage or financial loss). Broad “fitness for purpose” warranties
and consequential loss exposures may not be fully insurable. Managing contract wording (liability caps, exclusions, acceptance criteria) is often essential.
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What information helps insurers quote PL and PI for manufacturers?
What you make and where it’s used, territories, max contract value, design responsibility, commissioning scope, QA/testing, change control,
traceability and software version control (if relevant), plus contracts (limits/jurisdiction) and claims history.