What is Contractors Errors & Omissions Insurance (E&O Insurance)?
Posted by LPL Risk Management on
Lets face it, mistakes happen sometimes. Most people understand that General liability covers you for injuries and property damage, but what does E&O insurance cover? To sum it up and keep it simple, E&O will cover your mistakes (Wrongful Acts) that cause financial loss to a customer. There are three general areas that this can occur and those are; errors or omissions in the design of your work, faulty workmanship, and defective materials or products in your work.
But what do these three coverages mean for your business? Here is more information about each of them:
1) Errors Or Omissions In The Design Of Your Work
The first coverage provided on the contractors E&O insurance policy involves defects in the design of your work.
Suppose you provide services that involve not only the installation of a project but also the pre-installation design work. Or maybe you provide recommendations on the sizing of certain products or materials (pipe sizing recommendations, mechanical equipment recommendations, and so on). If that sounds like you, this coverage is applicable to your business.
If it is determined that a design flaw caused the project to not serve its intended purpose for the client, this coverage would help pay for the damages that the design defect caused.
2) Faulty Workmanship
Let’s face it – at some point during your years in business, you have probably made a mistake. Chances are you will probably make one sometime in the future, too.
No matter how much experience you have or how careful you are, mistakes can happen. When the client suffers financially because of your mistake (due to project delays, loss of income, reinstallation costs, etc.), the contractors E&O policy will cover your liabilities arising out of the situation.
It is important to note that if your faulty workmanship causes property damage or bodily injury to the client, that is a general liability claim. The contractors E&O insurance policy is meant to supplement the coverage gaps on the Contractors General Liability
3) Defective Materials Or Products In Your Work
At times, what looks like faulty workmanship or an issue with the design can actually be defective materials that you purchased from a supplier. These can range from defective concrete to defective products like electrical panels or pool pumps.
If, after the initial incident, it is determined that the installation of defective material or a defective product was the cause for the incident, the contractors E&O policy will respond and pay for damages.