3 claims examples that will make manufacturers want E&O insurance

Defective materials and faulty workmanship—it’s something manufacturing business owners don’t plan for.

You can check all the boxes, dot your i's and cross your t's and manufacturing errors can still happen. That's why we created errors and omissions (E&O) coverage specific to manufacturers that limits exposures not covered under commercial general liability forms. As a type of professional liability insurance, E&O coverage helps protect the products you make against lawsuits and claims. Your products matter, and your company deserves insurance that's specific to you.
Still not sold yet? Here are some examples that will explain the importance of E&O insurance.

3 E&O manufacturing insurance examples 

Claim #1: Faulty workmanship

Picture this: You’re a company that manufactures 15,000 parts for a customer. You’ve got a great relationship with the customer and things are going well. One day, it’s discovered that the material used by your facility in the last batch was faulty, rendering the parts unusable by the customer. In most cases, commercial general liability (CGL) policies will not cover this type of financial loss. Where’s that E&O policy when you need it?

Without E&O insurance you may be liable to cover any financial loss to the customer. 

With E&O insurance, you’re covered in that instance. Your coverage will take care of customer’s financial loss and may allow you to preserve your business relationship.

Claim #2: Impaired property

Picture this: As a manufacturer, you make a component that’s incorporated into a finished product for a third-party company. In this case, that part does not work in its intended manner due to a manufacturing process error. Unfortunately, this is realized late in the game and although the faulty component doesn’t damage the finished product, it renders it unusable or even less useful and therefore unmarketable by the third party. Maybe it was a negligent act that caused the mistake? Or maybe it was an honest mistake that wasn’t caught before the product was shipped. Either way, the third party will suffer financial loss through wasted productions costs and a halt in sales. 

Without E&O insurance, you may have to make up for lost or paused sales as well as wasted production costs. 

With E&O insurance, you’re covered in that instance. You don’t have to worry about the financial impact to your bottom line and hopefully you can pinpoint the issue and adequately address the mistake. 

Claim #3: Inadequate performance of work

Picture this: You’re a manufacturer that produces a special coating designed to reduce heat and friction on a standard gearbox. The product users, or customers, come to you because the coating failed and required the users to operate the device at lower, less-efficient speeds. They are seeking reimbursement for financial losses due to decreased production capability—a direct result of the coating you produced.

Without E&O insurance, you may be liable for their financial losses because your product caused a decrease in production. 

With E&O insurance, you’re covered in that instance. The coverage will take care of the financial loss and you can focus on ensuring the quality of your product. 

The importance of manufacturing insurance

Disclaimer: Claim examples are provided for illustrative purposes only. Please note that if there are any discrepancies between this blog post and the actual policy, the provisions of the policy shall prevail. Some states may not allow all coverages listed. Consult your agent about specific coverages available in your state.