Manufacturers E&O Insurance Coverage Explained

Manufacturers E&O Insurance Coverage Explained

What Does Manufacturers E&O Insurance Coverage Cover?

Consider this scenario: Your company manufacturers a part or parts to client specifications, but due to an error that occurred during the production process, the part or parts aren’t made to the clients’ specifications. The clients’ disrupted production schedule causes him to miss deadlines to ship the final product to his customers and files a lawsuit against your company for the financial loss.

Exclusions in General Liability Insurance That Make Manufacturers E&O Insurance Coverage Needed

Your Commercial General Liability (CGL) policy contain “damage to impaired property” and “property not physically injured” exclusions. That means that unless the manufacturing error results in bodily injury or property damage, the CGL policy will not cover the loss. In order to protect your business from litigation arising from your product failure that resulted in a third party financial loss without bodily injury or property damage, you will need to add Manufacturers E&O insurance coverage.

Manufacturers E&O Insurance Coverage Explained

Manufacturers E&O insurance coverage 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:

• Poor, incorrect or faulty products that you manufacture, handle, sell or distribute
• Errors and omissions when caused by material defect, including property damage to the product, property damage to the work and property damage to impaired property that results in a financial loss of a third party
• Negligence or failure to deliver promised services

Customers may allege that your product failed or that you were negligent in performing services outlined in a contract, they may seek to recoup their financial losses by suing you. Your business may incur significant legal costs, as well as potential damages if the case is lost, even if the customer’s lawsuit is found to be frivolous.

E&O premiums vary based on the type of product or service you need coverage for, the amount of work your company does and the policy limits desired.