Manufacturers E&O or Errors & Omissions Insurance – what is it, who needs it, why do manufacturing companies need it. I’m going to answer these questions and more in this article.
So when we think of E&O or Errors & Omissions insurance we tend to think of occupations or professions that provide advice to their clients – consultants, architects, financial advisors, engineers and so forth. If they give bad advice or advice that has an error or an omission and a client sues them, it’s that professional’s E&O policy that pays that claim.
So why do Manufacturers need to consider Errors &Omissions insurance? They’re not giving advice? What’s the risk?
Well, let’s take a step back for a moment and consider what E&O claims focus on – paying claims of financial damages suffered by third parties, like customers. That’s the crux of E&O Liability and how it differs from General Liability which focuses on bodily injury or property damage claims.
With that in mind, here are the types of claims which can be triggered that are not covered by a manufacturer’s general liability policy, pointing to the need of Errors & Omissions i protection:
- A product does not work as intended and causes consequential financial damages to the customer.
- An IoT device malfunctions and results in unauthorized data access resulting in lawsuits against the manufacturer for damages sustained.
- A product is alleged to be defective by the manufacturer’s customers who sustain additional costs, and lost income and sue the manufacturer for recovery.
- The mislabeling of consumer goods triggers a lawsuit against a manufacturer for the costs to remove non-compliant goods from retailer’s stores, lost revenue and reputational damages.
- A manufacturer fails to deliver seasonal goods to a retailer on time, which triggers financial damages to the retailer who turns around and sues the manufacturer for their loss.
None of these types of claims would trigger a manufacturer’s commercial general liability policy because no bodily injury or property damage occurred, which is required for GL to respond.
They all point to the need for Manufacturer’s E&O to be considered by manufacturing firms to close the potential gap that exists in the general liability policy.
Would these types of claims be covered by the manufacturer’s umbrella policy?
No, the umbrella or excess liability policies are intended to cover claims that are covered by the primary general liability but exceed that policy’s limits of protection.
What about the D&O or Directors & Officers Liability policy?
Again, no. That policy focuses on claims alleging a wrongdoing in managing the affairs of the company.
Manufacturer’s E&O is a unique coverage part that can be written as a stand-alone policy, but some insurers can offer it as part of a package. However it’s available, it should be a coverage part considered by any manufacturer.
For companies that import goods from China or elsewhere outside the US, they too should consider Manufacturer’s E&O since they are considered Manufacturers for insurance purposes and their General Liability policies wouldn’t cover this exposure.
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