My Account
We compare quotes from leading engineering & manufacturing insurers
DEFECTIVE PARTS RISK IS A REAL LIABILITY EXPOSURE
What Is Product Liability in Precision Engineering?
Product liability insurance is designed to protect your business if a product you manufacture, supply, modify, or distribute causes injury or property damage to a third party. In precision engineering and manufacturing, “product” often means: machined components, fabricated assemblies, bespoke parts, jigs/fixtures, subassemblies, fasteners, hydraulics, pneumatics, electrical components, and any part that is installed into a wider system.
The key point is this: even a small defect can create large downstream consequences. A tolerance deviation, wrong material grade, surface finish issue, heat-treatment error, contamination (swarf), or incorrect assembly can cause failure in service — potentially leading to expensive damage claims, legal disputes, and reputational harm. The right products liability structure helps protect your balance sheet when the worst happens.
Product Liability vs Defective Work vs Warranty: What’s Actually Covered?
Many engineering firms assume “product liability” means “anything that goes wrong with a part.” In reality, liability insurance is typically designed to pay third-party damages and legal costs when your product causes injury or property damage — not to pay for every commercial cost of defects.
This page explains what product liability can cover, where the common gaps are (batch rejection and rework), and how to build a robust insurance programme that reflects real-world defective parts risk. If you supply into sectors with strict requirements (automotive, aerospace, medical, energy, food production machinery), the policy wording, territories, and limits need to match your contracts.
Insure24 helps precision engineering businesses structure cover correctly — often as part of a wider package including employers’ liability, public liability, property/stock, business interruption, and (where relevant) professional indemnity for design/specification work.
CALL FOR EXPERT ADVICEGET A QUOTE NOW
Public Liability vs Products Liability (And Why You Usually Need Both)
Public Liability
Public liability covers your legal liability if your business activities cause injury or property damage to third parties. For manufacturers, this includes:
- Visitors, customers, and contractors on your premises
- Delivery drivers and loading bay incidents
- Off-site work such as installation, servicing, or commissioning support
- Accidental damage caused during visits or inspections
If you have people coming onto site, or your team goes onto other sites, public liability is a key foundation.
Products Liability
Products liability is designed for claims arising from the goods you manufacture or supply after they leave your control. In precision engineering, that may include:
- Machined components installed into equipment or systems
- Fabricated parts and assemblies supplied to OEMs
- Bespoke parts for maintenance/repair operations
- Your own branded manufactured products
If a defect causes injury or property damage, products liability is generally the line of cover that responds (subject to policy terms).
Most engineering businesses buy combined public and products liability because their exposure spans both “premises/operations” and “completed products.” The exact structure, limits, and wording should reflect what you make and where it’s used.
Defective Parts: The Most Common Root Causes
Insurers don’t just look at your turnover — they look at the probability and severity of defective parts causing downstream harm. Understanding typical root causes helps you improve risk controls and, often, secure better terms.
Manufacturing & Process Issues
- Tolerance deviation, incorrect dimensions, out-of-spec features
- Surface finish issues causing premature wear or seal failure
- Incorrect heat treatment or hardness/temper errors
- Contamination, swarf, debris causing system damage
- Assembly errors, torque/fit mistakes
- Incorrect coatings/plating or outsourced process failures
Many of these issues are “fixable” via process control and inspection — which insurers like to see.
Material & Supply Chain Issues
- Wrong material grade or substitution (intentional or accidental)
- Traceability gaps (unable to identify batch/heat)
- Supplier quality issues feeding into your production
- Counterfeit or substandard materials in the chain
- Inadequate storage causing corrosion or damage
- Packaging/handling damage that is not detected before dispatch
Strong supplier approval and traceability can be the difference between a manageable incident and a major claim.
No manufacturer is immune from defects — but the question insurers ask is: how quickly can you detect an issue, contain it, and evidence your controls? That’s why quality systems, calibration, inspection sign-offs, and document control are so important.
What Products Liability Insurance Can Cover (In Plain English)
Product liability is typically designed to respond to third-party claims. The exact cover depends on policy wording, limits, exclusions, and whether you have any endorsements. In general, a well-structured products liability policy may cover:
Typical Insured Outcomes
- Compensation or damages awarded for third-party injury
- Compensation or damages for third-party property damage
- Legal defence costs (subject to policy terms and consent)
- Investigation costs and expert evidence (where included)
- Court costs and awarded claimant costs (where applicable)
This is the “catastrophic protection” many manufacturers need: when a defect triggers a large loss, you’re not funding the claim alone.
Important Context
Liability insurance generally responds when there is an allegation of negligence and a third party suffers damage or injury. Where a component is simply rejected for not meeting specification (with no injury/property damage), that’s often a commercial dispute.
This is why a complete programme often includes:
- Legal expenses for contract disputes (subject to prospects/terms)
- BI and breakdown for downtime events that stop output
- PI where design/specification advice is provided
We help you structure the programme so you’re protected across the main failure modes.
What’s Commonly Not Covered (And How to Manage It)
This is where most misunderstandings happen. Many “defective parts” costs are not liability claims — they are quality/commercial costs. Understanding this upfront helps you design better risk management and avoid surprises.
Typical Non-Cover Areas
- Rework / remanufacture of your own parts (where no third-party damage occurred)
- Batch rejection due to failure to meet tolerances/specification
- Warranty “make good” costs for your own product without resulting damage
- Pure financial loss with no injury/property damage (unless PI responds and wording allows)
- Contractual penalties / liquidated damages (often not insured under liability policies)
Some of these risks can be reduced through contract terms and quality controls, rather than insurance alone.
Practical Risk Controls That Help
- Clear acceptance criteria and inspection sign-off procedures
- Traceability (material heat/batch, serialisation, job packs)
- Supplier approval and outsourced process controls
- Contract terms limiting liability and excluding consequential loss (where possible)
- Containment plans: quarantine, recall procedures, customer comms workflow
Insurers rate businesses with strong containment and documentation more favourably because they reduce claim severity.
Do You Also Need Professional Indemnity for Defective Parts Risk?
Products liability is about injury/property damage from a product. But some defective parts disputes are actually about design/specification or professional judgement — especially where you advise on materials, tolerances, manufacturability, or performance.
If your role includes design input, drawing amendments, calculations, prototyping support, or engineering advice relied upon by customers, you may need professional indemnity (PI) alongside product liability. PI is designed for claims alleging professional negligence causing financial loss. Many businesses “accidentally” move into PI territory without realising it.
Common PI Triggers in Precision Engineering
- Design-for-manufacture advice (tolerance/material recommendations)
- Customer drawing changes proposed and approved
- Prototype iterations and engineering sign-off
- Engineering advice on performance or integration
- Inspection/certification work relied on by customers
PI should be aligned with your actual scope, contracts and the way you present your services to customers.
Why This Matters
A defective parts dispute may start as a quality issue but escalate into an allegation of negligence in design/specification. If your insurance programme only includes products liability, you may discover a gap for pure financial loss claims.
We’ll help you map your work types and contracts, then structure the correct combination of covers (PL/Products + PI + legal expenses where appropriate).
Supplying Overseas? Territory & Jurisdiction Matter
Precision engineering businesses often supply into international supply chains. Even if you sell to a UK customer, your parts may end up installed in equipment that is exported. Liability can follow the product — and policy wording must match your exposure.
Key Questions Insurers Ask
- Where are your products sold and used?
- Do you export directly? If yes, to which territories?
- Do your customers export and do contracts “flow down” liability?
- Are any goods supplied into the USA/Canada?
- Are products safety-critical or regulated?
USA/Canada exposure often needs specific underwriting and can affect price and policy structure.
Contract-Ready Insurance Evidence
Many OEMs and tier suppliers require evidence of products liability insurance and specific limits (e.g., £2m/£5m/£10m+). We help align:
- Limits and aggregate structure
- Territory and jurisdiction wording
- Principal’s indemnity / additional insured requirements (where insurable)
- Contractual liability expectations and realistic limitations
The goal is a policy that matches client requirements and still works when a claim happens.
How Insure24 Quotes Product Liability for Precision Engineering
The fastest way to get the right policy (and the right premium) is clarity. Product liability underwriting is about what you make, where it goes, and the severity of downstream consequences if something fails. We’ll ask questions that help insurers price accurately.
Information We’ll Typically Need
- Turnover and split by product type / customer industries
- Details of products and end-use (what the part is used for)
- Any design/specification element to your work
- Territories (UK/EU/worldwide; any USA/Canada)
- Quality controls (inspection regime, calibration, traceability)
- Claims history and any known issues addressed
What Often Improves Terms
- Documented QA, first-off inspections and sign-off records
- Material traceability and controlled suppliers
- Clear contract terms limiting consequential loss where possible
- Good housekeeping and site risk controls (fire/security)
- Evidence of corrective action and continuous improvement
Good documentation reduces uncertainty — and uncertainty is what drives premium and exclusions.
Why Choose Insure24 for Product Liability & Defective Parts Insurance?
- Manufacturing-aware placement: We understand tolerances, traceability and downstream risk.
- Contract-ready support: Help meeting client limits and evidence of insurance requirements.
- Programme design: Align PL/Products with PI, legal expenses and BI where relevant.
- Fast quoting: Efficient placement once your activities and end-use are clear.
- Claims support: Practical guidance when speed and documentation matter.
If you want a quick review of your defective parts exposure and the right insurance structure, call us on 0330 127 2333.
FREQUENTLY ASKED QUESTIONS
+-
What is product liability insurance for manufacturers?
Product liability insurance is designed to protect manufacturers and suppliers if a product they make or supply causes third-party injury or property damage. It can also cover legal defence costs, subject to policy wording, limits and exclusions.
+-
Does product liability cover defective parts and component failures?
It can cover claims arising from defective parts where the defect causes third-party injury or property damage. However, the cost of remanufacturing, rework, or batch rejection without injury/property damage is usually not covered because it is treated as a commercial quality issue.
+-
Is public liability the same as products liability?
No. Public liability relates to injury or property damage arising from your activities (premises and operations). Products liability relates to claims arising from products you manufacture or supply after they have left your control. Manufacturers usually need both.
+-
Do I need professional indemnity as well as products liability?
If you provide design/specification advice, modify drawings, recommend materials/tolerances, or provide engineering judgement clients rely on, professional indemnity may be appropriate. PI is designed for claims alleging professional negligence causing financial loss, while product liability is focused on injury and property damage caused by products.
+-
Does product liability cover exports and overseas supply chains?
It can, but you must ensure your policy territory and jurisdiction wording matches where your products are sold and used. If you export directly or supply into customers who export, tell your broker so the policy is arranged correctly. USA/Canada exposure often requires specific underwriting.
+-
What information do insurers need to quote product liability for precision engineering?
Insurers typically want turnover, what you manufacture and its end-use, your customer industries, territories (including any exports), quality controls and traceability systems, and claims history. Clear information reduces uncertainty and usually improves terms and pricing.