Errors & Omissions insurance is an important yet often forgotten insurance coverage by many contractors. Almost every contractor carries some form of general liability coverage. While these policies can provide much-needed protection for bodily injury and property damage claims that occur as the result of a contractor’s work, they typically don’t account for all forms of negligence, and does not cover faulty work.
That’s where professional liability or E&O comes in.
Simply put, general liability policies are not adequate enough to protect against errors and omissions claims, necessitating standalone coverage. In fact, most general liability policies exclude your work, your products, and impaired property, creating significant insurance gaps.
Errors & Omissions policies can help contractors close gaps in their insurance coverages, covering damages to your work that occurs once the job is completed and that is a direct result of your personal negligence, error, or omission. This includes the following scenarios:
- Failing to deliver promised services
- Negligence in providing professional services
- Poor, incorrect, or incomplete work
- Errors and oversights
Some situations which a claim may arise include:
- Improper design of a concrete floor that cracks under the weight of a company’s equipment
- Installation of a heating and cooling system found to be incapable of properly ventilating a building
- A design defect that prohibits a building from being certified
Errors & Omissions insurance for contractors only applies to damages to the work and the product when the work is completed, so any work that is still in progress won’t be covered. Additionally, most policies do not cover dishonest, malicious, illegal, or criminal acts, such as the intentional violation of the law. For instance, if a contractor knowingly substitutes cheap materials or otherwise cuts corners to save money, and it results in damages to the value of the work, the resulting damages will not be covered.
Errors & Omissions policies are usually written on a claims-made basis, meaning the policy must be active when a claim is made in order for coverage to apply. Courts often rule against contractors in claims related to errors and omissions and, without the proper protection, general contractors would have to cover the damages out of pocket.
As a contractor, you should consider purchasing an E&O policy to ensure you are accounting for all of your unique risks.
For More Information:
Client Advisor, Partner