Prototype insurance FAQ

There is no standard standalone product called prototype insurance. Prototype liability is typically addressed through commercial general liability (CGL) insurance, and the question is whether prototypes fall inside the policy definition of your product. Policies written for finished goods can exclude pre-commercial products, prototypes, and R&D units.

A running prototype at a show is an operations exposure, and the premises-and-operations half of general liability is the part that responds if a visitor is hurt, subject to the carrier wording. The venue will ask for a certificate naming it as an additional insured before the booth opens. Tell the underwriter about the show, because a policy priced for lab work may not have contemplated a public demo.

Product liability is one half of general liability. Premises and operations responds to harm while you are doing the work; products-completed operations responds to harm caused by a product you sold or work you finished, after it left your hands. Both sit on the same policy, and each carries its own aggregate limit.

Some forms remove coverage for any product not yet released for sale, and others define your products narrowly enough that a pilot unit on loan does not count as sold. If you loan, lease, or pilot hardware before you sell it, the definition of your product in the policy decides whether the products half is in play at all. A startup whose entire output is prototypes can hold a general liability policy whose products half excludes everything it makes.

Their policy covers their manufacturing errors. A defect that traces to your design, your specification, or your decision to ship lands on your products coverage, and the indemnity clause in the manufacturing agreement decides who pays first when the cause is unclear. Both sides usually carry products coverage and name each other as additional insured.

Usually not. Recall costs, the notices, the shipping, and the rework, are commonly excluded from general liability and sold as a separate recall coverage.

You need general liability before your first lease, demo, or site visit, and the products half of it matters the moment a unit leaves your hands on loan, on pilot, or for sale. The thing to check before you sell is whether prototypes and pilot units fall inside the policy definition of your product, because some forms exclude products still in development.

An occurrence form covers bodily injury or property damage that occurs during the policy period, regardless of when the claim is first made. IRMI defines a claims-made policy as coverage triggered when a claim is made against the insured during the policy period, regardless of when the wrongful act took place, subject to any retroactive date. Most CGL policies are written on an occurrence basis, and a claims-made form is also available. Which form a policy uses is set in the policy itself.

That depends on the policy. IRMI defines duty to defend as an insurer obligation to provide an insured with a defense to claims made under a liability policy, generally broader than the duty to indemnify, so the duty may exist even where coverage is in doubt. Some policies instead require only that the insurer reimburse the insured for funds spent defending a claim. Confirm how defense is handled in the actual policy wording.

No. This site is informational only and does not recommend any insurer or product. It gives no insurance advice, offers no quotes, and takes no applications. For guidance about a specific situation, consult a licensed insurance professional or attorney.