Product Liability vs Professional Indemnity Explained

Product Liability vs Professional Indemnity: The Key Difference

Precision engineering and manufacturing businesses often ask the same question: “Do we need Product Liability or Professional Indemnity — or both?” The answer depends on what you supply and what responsibility you take.

In simple terms:

• Product Liability is mainly for claims involving injury or property damage caused by products you supply.
• Professional Indemnity (PI) is mainly for claims involving financial loss caused by your professional services (design, advice, tolerances, specifications, calculations, sign-off).

Many manufacturing disputes involve no injury and no damage — they are arguments about tolerance, specification, performance, or whether advice was correct. Those claims may fall outside product liability and into PI, or into contractual “make good” costs that may not be insured at all.

This guide explains what each policy covers, where gaps commonly appear, and how to structure cover for precision engineering businesses supplying automotive, aerospace, rail, defence, medical, industrial plant and general manufacturing supply chains.

What Product Liability Insurance Covers (Manufacturers)

Product liability insurance is designed to protect your business if a product you supply causes:

• Bodily injury to a third party (e.g., an end user, contractor, customer employee)
• Property damage to third-party property (e.g., damage to a customer’s equipment or assembly)

For precision engineering, product liability claims might arise if a component fails in service and damages a larger assembly, causes overheating, leads to a mechanical breakdown, or contributes to an incident. Product liability policies typically include legal defence costs for covered claims, subject to the wording.

What product liability typically does NOT cover

• The cost of replacing or remaking your own defective product when there is no damage
• Routine rework and scrap costs (commercial/quality costs)
• Many types of “consequential loss” such as customer line stoppage, penalties or lost profits (often excluded or restricted)
• Voluntary recall or rectification costs unless a specific extension exists

The key takeaway: product liability is for third-party injury/property damage — not for everyday quality disputes.

What Professional Indemnity Covers (Design, Spec & Advice)

Professional indemnity (PI) insurance is designed to protect your business if a client alleges that your professional services caused them a financial loss. In precision engineering and manufacturing, PI becomes relevant when you:

• Provide design for manufacture (DFM) advice
• Set or recommend tolerances and acceptance criteria
• Create drawings or CAD files
• Make material selection or process recommendations
• Provide calculations, testing procedures, commissioning or sign-off
• Reverse engineer components or provide technical consultancy

PI claims often involve rework programmes, replacement costs, production delays, contractual disputes, and allegations of negligence — without any injury or physical damage. PI typically includes defence costs for covered claims, subject to policy terms.

Important PI features manufacturers should understand

• Claims-made basis: PI usually responds to claims made (and notified) during the policy period, subject to retroactive date
• Scope wording matters: The policy must reflect what you actually do (design, tolerancing, commissioning, etc.)
• Contractual promises: PI may not cover obligations you accept beyond negligence (e.g., “fitness for purpose” guarantees)

The Grey Area: Rework, Replacement & Batch Failure Costs

The most frustrating losses for manufacturers are often “grey area” costs: parts are out of tolerance, a batch is rejected, a customer demands sorting, containment, expedited shipping, or a replacement programme — but there is no injury and no third-party property damage.

These costs are often considered own work / make-good costs or contractual obligations, and standard product liability policies may not respond. PI may respond if the claim is framed as professional negligence (e.g., you advised tolerances/specs), but it will depend on facts and wording.

The practical solution is to combine:

• Correct insurance structure (PL/Products + PI where relevant)
• Contract controls (clear acceptance criteria, limitations of liability, scope definition)
• Quality controls (traceability, revision control, inspection, corrective actions)

Insure24 helps you create an insurance programme and risk presentation that reflects how real claims arise in modern supply chains.

How to Decide What You Need

A practical decision framework for manufacturers:

1) Do you supply physical products?

If yes, product liability is usually essential — particularly if products are used in machinery, vehicles, industrial systems, or safety-critical settings.

2) Do you provide design/specification/tolerance input?

If yes, PI should be considered — even if you see it as “minor advice”. Many claims stem from informal recommendations or emails.

3) What do your contracts require?

Many supply agreements specify minimum limits and policy types. Make sure your policy matches the clause and your actual work.

4) Where do you sell?

Territories and jurisdiction matter. If you export, confirm the policy territories and whether USA/Canada is included or excluded.

Insure24 can review your risk profile, contracts and activities and recommend a balanced insurance programme that avoids gaps.