Hausmann Group December 19, 2016 4 min read

Who Needs Errors & Omissions Insurance?

Errors & Omissions (E&O) coverage kicks in where your Commercial General Liability policy does not provide coverage, such as for service errors, contract performance disputes, and other professional liability issues. These policies also include defense costs, which can be quite substantial even if liability is not found. The policies typically provide coverage for financial loss by a third party for whom you provided professional services.

Who Needs E&O Coverage?

This coverage may be necessary for any company that gives advice, makes educated recommendations, designs solutions, represents the needs of others, or builds, installs, or manufacturers products to specification. Service professionals, such as accountants, computer consultants, software developers, planners, architects, real estate agents, contractors, etc., are prime candidates for carrying E&O insurance.

Consider the following scenario: A customer asks your company to manufacture a part according to certain specifications, which were outlined in a contract. He needs to add the part to his product and ship it to his customers by a set deadline.

Your company creates the part, but due to an error that occurs during the production process, the part isn’t made to the customer’s specifications. He receives the part, realizes he can’t use it in his final product and requests that the part be remade. The delay in production causes him to miss the deadline to ship the final product to his customers, so he files a lawsuit against your company for the financial loss. This scenario could expose your business to significant liability if you don’t carry the right insurance policy.

Manufacturers E&O Insurance

Manufacturers E&O is professional liability insurance that covers a manufacturing mistake or negligent service that results in a third party financial loss without bodily injury or property damage. E&O insurance covers damages that result from the following:

  • Poor, incorrect, or faulty products that are manufactured, handled, sold or distributed
  • Errors and omissions caused by material defect, including property damage to the product, property damage to the work, and property damage to impaired property
  • Negligence or failure to deliver promised services

If customers allege that your product failed or that you were negligent in performing services outlined in a contract, they will likely seek to recoup their financial losses through litigation. You could be saddled with significant legal costs, as well as potential damages if the case is lost. Even if the customer’s lawsuit is found to be frivolous, you could still incur the cost of defending yourself. That’s where Manufacturers E&O insurance can provide significant financial risk mitigation.

If you have additional questions regarding Errors & Omissions coverage and how it can protect your business, feel free to contact your trusted advisors at Hausmann-Johnson Insurance.