Short answer
Engineering firm product liability insurance becomes a question the moment a firm designs and sells something physical, such as a panel system or a manufactured component. Professional liability is built for claims about your services. Claims about the product itself usually fall under products liability, which sits in a general liability or product policy. Plan the entity structure, contracts and coverage with your agent before the first sale. Whether a policy responds depends on its wording and the facts.
Services vs. products
A service is advice, design or analysis. A product is a physical item you make, sell or supply. Insurance policies treat the two differently.
Professional liability responds to claims that your professional services were negligent, subject to its terms. Products liability responds to claims that a product caused bodily injury or property damage. A firm that does both can face claims on either side.
Insurers split these exposures because they price them differently. A claim about a design error and a claim about a defective panel involve different facts, different evidence and different underwriting.
Where the gaps appear for engineering firm product liability insurance
Gaps often come from exclusions that point the other way:
- General liability policies often exclude professional services
- Professional liability policies often exclude products and manufacturing
- Design-and-supply contracts blend both roles in one agreement
A firm can fall between the two. A claim that blends design and product issues may raise questions about which policy applies. Neither carrier may want to pick up the part that belongs to the other.
The IRMI glossary entry on the products-completed operations hazard describes how insurers define product-related exposure. Your own policy wording controls what it covers.
Entity structure
Many firms separate the product business from the engineering practice. A firm might form a product company as the parent and keep engineering services inside it, or place them in separate companies under common ownership.
Each structure changes who is the named insured on each policy. A named insured is the entity the policy covers. A policy that names only the engineering firm may not respond to claims against a separate product company.
This is a business and legal decision. Plan the insurance alongside it, so each entity carries the coverage that fits what it does. Our article on running two LLCs under one practice explains why carriers ask about related entities.
Contracts
Product sales and engineering services use different contract language. A service contract often relies on a professional standard of care. A product sale may include warranties about performance, durability or fitness for a purpose.
Product warranties can go beyond what any policy covers. Words like “best,” “highest” or “ensure” can raise the standard a firm accepts, and they deserve attention in both service and supply contracts. Our article on those words explains why.
Keep design and supply separate in the contract when you can. Have your attorney review warranties and indemnity before you sign.
Questions to ask your agent
These questions can start the conversation:
- Which policy responds if the product fails?
- Do I need products and completed operations coverage?
- How should the two companies be insured?
- Does my professional liability policy exclude products or manufacturing?
What we see at Hardcover
A structural engineering firm with a patented panel system told us the product company would become the parent, with engineering services inside it. They asked how insurance works with a construction product plus engineering services.
We flagged that the product side would likely need products liability, not just professional liability. We also suggested planning the entity structure and the policies together before the first sale.
Related questions
This will become our parent company, and the engineering firm will be a child of it. How does insurance work with a construction product plus engineering services?
Each entity needs coverage that fits what it does. The product company usually needs products liability. The engineering firm needs professional liability. Plan the structure, named insureds and policies with your agent before the first sale.
Does professional liability cover a product I sell?
Generally not. It is built for professional services. Products are usually covered under products liability.
Do I need two companies?
Many firms separate them. It is a business and legal decision, so plan insurance alongside it.
What about warranties on my product?
Product warranties can go beyond what any policy covers. Review them with counsel.
General education, not legal advice. Hardcover is an insurance agency, not a law firm.