Building hardware is complex. Whether you’re producing robotics systems, smart home devices, or advanced sensors, you’re working at the intersection of physical engineering, software, and supply chains. That means your risks—and your insurance needs—are equally as complex.

Having the right insurance is a strategic safeguard that can protect your team, your investors, and your runway when things go wrong. No single policy does it all. Instead, insurance works as a layered safety net: each coverage protects against a specific type of risk, and together they help hardware companies stay resilient.

Recommended Coverages

While each hardware company has a unique risk profile, some insurance coverages are foundational. These are the core policies that nearly every hardware company should consider.

Directors & Officers (D&O)

D&O insurance protects your company’s leadership—founders, executives, and board members—from lawsuits related to decisions they make in their roles. For hardware companies, this could include claims tied to product recalls, fundraising disputes, or IP misrepresentation during M&A discussions.

Example: A hardware CEO is sued by an investor over allegations of misrepresented performance metrics. D&O would help cover legal fees and settlement costs.

Errors & Omissions (E&O)

E&O (also called Professional Liability) covers claims that your service or product didn’t perform as promised and caused financial harm. If your product includes embedded software or sensors and fails in a way that costs a customer money, E&O may respond.

Example: A robotics company delivers automation hardware that misfires during operation, shutting down a customer’s production line. The customer sues for lost revenue.

Cyber Insurance

Cyber risk isn’t limited to SaaS companies. Connected hardware—like IoT devices—can expose your company to cyberattacks and data breaches. Cyber insurance covers both first-party losses (like data recovery) and third-party liabilities (like customer lawsuits).

Example: A consumer device startup suffers a breach that exposes customer home data. Cyber coverage helps fund breach notifications and credit monitoringVPK-Vouch Coverages-280….

General Liability

General Liability (GL) covers third-party claims for bodily injury or property damage. This is especially important for hardware companies that build or sell physical products.

Example: A consumer is injured by a malfunctioning drone. GL covers the legal defense and potential damages.

Business Property

Business Property insurance protects physical assets like tools, prototyping equipment, inventory, and office furniture. It can also cover losses from fire, theft, or natural disasters.

Example: A warehouse fire destroys your prototype inventory. Property coverage can reimburse you for the lost equipment.

Employment Practices Liability Insurance (EPLI)

EPLI protects against claims related to wrongful termination, discrimination, and workplace harassment. As you grow your team, this coverage becomes essential.

Example: A former engineer sues for gender discrimination during a promotion cycle. EPLI helps cover legal costs and any settlement.

Additional Coverages

While the above are core protections, hardware companies often benefit from other policies based on how they operate:

• AI Insurance: Covers risks related to algorithms and automated decision-making—relevant if your hardware includes autonomous or AI-driven components.
  
• Crime Insurance: Protects against internal theft, fraud, and forgery.
  
• Fiduciary Liability: Covers claims related to mismanagement of employee benefit plans.
  
• Hired & Non-Owned Auto (HNOA): Protects your business when employees use personal or rented vehicles for work.
  
• Media Liability: Covers risks related to content—such as product marketing videos or customer tutorials—that could trigger copyright or defamation claims.
  

Hardware-Specific Considerations for Coverage

Hardware companies face risks that are uniquely tied to physical products and manufacturing.

Product Liability

Product Liability coverage is one of the most critical policies for hardware companies. It protects against claims that your product caused injury or property damage.

It's essential for hardware companies because physical products carry real-world risks—like injury, property damage, or fires—especially as you scale. Even if a defect originates with a third-party manufacturer, your company can still be held legally liable. This coverage helps pay for legal defense, settlements, and medical or repair costs tied to product-related harm. Without it, a single incident could jeopardize your runway, partnerships, or ability to go to market.

Example: A smart toaster overheats and starts a kitchen fire. Product liability responds to the homeowner’s lawsuit.

Inland Marine / Cargo Insurance

If you ship hardware to distributors or customers, Inland Marine coverage helps protect your goods while in transit. It's especially useful for early-stage companies shipping high-value prototypes.

Example: A shipment of industrial sensors is damaged during freight transit. Cargo insurance covers the replacement cost.

Equipment Breakdown

This policy covers unexpected mechanical failure of critical production or testing equipment.

Example: Your CNC machine fails due to an electrical surge. Equipment Breakdown helps fund repairs and associated business interruption costs.

Exclusions

Every policy has exclusions—things it intentionally does not cover. Common exclusions include:

• Prior Known Incidents: Events that happened before you bought the policy.
  
• Contractual Liabilities: Unless specifically included, coverage may not apply to liability assumed in a contract.
  
• Fraud or Criminal Acts: These are typically excluded unless separately covered under Crime Insurance.
  
• Product Recalls: Standard product liability policies usually don’t cover recall expenses unless added via endorsement.
  

Understanding exclusions is essential so you’re not surprised by a denial when it matters most.

Importance of Scaling Coverage

As your hardware company evolves—raising capital, launching new products, entering new markets—your risk profile changes. That means your insurance needs to evolve too.

Some examples of when you should reassess:

• Fundraising: Investors often require D&O and proof of other coverages.
  
• Manufacturing at scale: Larger distribution may increase product liability exposure.
  
• Hiring spree: More employees raise EPLI and workers’ comp risk.
  
• Entering new geographies: Policies need to reflect your operational footprint.
  

Reviewing coverage annually (or when hitting major milestones) ensures you’re protected and investor-ready.

Hardware companies operate in a high-stakes environment—physically, financially, and legally. Having the right mix of insurance coverage isn’t just risk management—it’s growth enablement. With the right policies in place, you can build boldly, knowing your people, your product, and your future are protected.

This content is for informational purposes only and does not constitute an offer of insurance. Coverage is subject to underwriting, availability, and the terms, conditions, and exclusions of the applicable policy. Not all products are available in all jurisdictions. Please contact Vouch for more information.

Vouch Specialty Insurance Services, LLC (CA - 6004944 - vouch.us/legal/licenses)