While most contractors possess basic general liability policies, very few are aware of the need for comprehensive E&O insurance as well. Most contractors need to purchase errors and omissions insurance so that they can protect themselves from inadvertent errors in their work.
Contractors are Susceptible to E&O Claims
These business risks can include inadvertent damage to the work of the insured party, damage to products, impaired property, and much more. Many contractors are vulnerable to these types of claims because courts will rule against contractors when the lines between ‘work’ and ‘product’ become blurred.
There are many producers who are skeptical about E&O insurance and consider it to be unnecessary. However, general liability coverage will not pay for expenses that arise from inadvertent errors or omissions in your work. In other words, if you make a mistake and your client files a claim, you’ll be liable. Only E&O coverage can pay for your expenses if you are caught in such a situation.
Choose Insurance Companies with Contractor Experience
Here, contractors need to contact an insurance company that has been offering contractors E&O for some time. A contractor’s E&O policy will contain bells and whistles that are not normally found in other errors and omissions policies.
Here is where it is important to note the distinction between professional liability insurance and contractor’s errors and omissions insurance. Never rely on policy coverage titles, instead, look at the fine print within each insurance policy. Always review your provisions.
Contractors should obtain coverage with on a contractors errors and omissions coverage form. This is especially true for contractors who work in construction management or design build projects. These policies will usually face limitations. They will cover issues such as negligent acts, errors, or omissions. Normally, general liability insurance won’t pay for such claims.
Contractor’s errors and omissions policy’s are written as a claims-made policy form. This means that the policy will cover errors or omissions that occur during the policy period. There will be no coverage for an incident that occurred before the policy was in action.
Read the Fine Print
Sometimes, these policies have stipulations that limit the coverage to the contractor’s covered capacity as it is designated in the policy. This is why it’s important to purchase a policy that will explicitly describe the types of coverage that are provided.
Coverage will not be extended to damages caused by subcontractors. This is why general contractors need to only hire high quality subcontractors for their work. Otherwise, general contractors can end up paying the price for shoddy work done by cheap subcontractors.
Contractors need to specify their coverage and be fully aware of what their policy provides. Not all errors and omissions policy will cover legal expenses or damages incurred by claims.
All contractors make mistakes, but only the ones who protect themselves can recover from mistakes. Again, contractors are vulnerable to litigation, but powerful E&O insurance secures the work of the contractor.
Read more about errors and omissions insurance and how to build a policy that is appropriate for a contractor.