Member Article

Product liability insurance is often offered as an alternative to professional indemnity insurance by sub-contractors but is it really an alternative? The two forms of insurance have some fundamental differences.

Professional indemnity insurance covers claims arising out of the professional activities of design consultants, sub-contractors or the contractor. The usual policy wording requires the insurers to indemnify the insured for sums they are obliged to pay out due to an act, error or omission in carrying out their professional activities. Most claims therefore are due to the breach of the insured’s duty of reasonable skill and care.

By contrast product liability insurance covers damage to property or persons caused by a product, but does not cover damage to the product itself. This is a common misconception. Whereas professional indemnity insurance does include the cost of replacement or repairs to any physical thing which embodies the negligent design or specification giving rise to liability, product liability insurance does not. It relates only to the supply of goods or products and not to services.

Without an extension to the policy product liability insurance will not cover consequential loss. Product liability insurance does however cover contractual and common law liability for provision of defective or dangerous goods and is not limited to a failure to exercise the common law duty of care.

It is important to understand the difference in the cover offered to evaluate which type of insurance is required in which circumstances.