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  • Marc Hershman

Manufacturers Errors & Omissions Insurance

Is There A Gap In Your Cover?


The manufacturing industry is undergoing a period of rapid change. As digital and physical processes continue to converge, manufacturers are modernising their production methods, enhancing their products, and changing the way they service and support their customers.


Supply chains are becoming more complex and increasingly global. Generally there is low flexibility or tolerance for ‘issues’ within the chain.


These changes present an array of new risks that manufacturers may not be adequately protected against through a traditional General Liability policy. This is why many manufacturers should consider Errors and Omissions (E & O) cover.


Manufacturers Liability Insurance with Insurely NZ

What Is Errors and Omissions (E & O insurance?


A General Liability policy will only cover claims arising from property damage or bodily injury.


Therefore, a manufacturing E & O extension can fill the gap by providing cover for financial losses where the product has failed but there hasn’t been physical loss or bodily injury.


A manufacturers' E & O cover is an extension of a standard General Liability Policy. It can play a critical part in protecting a manufacturer’s balance sheet by responding on a manufacturer’s behalf to third-party claims alleging financial or economic injury.


It’s therefore important to consider how problems in the supply chain can affect your business. How easily could the product you supply be replaced? This will affect the likelihood and size of an error and omissions claim.



Manufacturers Insurance with Insurely NZ
Machinery Manufacturer E & O Claim

E & O - Claim Example 1

Machinery Manufacturer (Chubb)


A claim is made against a machinery manufacturer for loss of production time during a processing line outage. The machinery manufacturer was performing a routine maintenance visit for a product sold to their client.


Whilst modifying the equipment, it resulted in slower than expected production speeds and subsequently lower output capacity.



Won’t A Professional Indemnity Policy Cover This?

No. Professional Insurance (PI) is designed to protect professionals from such claims of negligence or breaches of duty that results from the professional advice or service provided.


including the physical construction, manufacture, installation, repair or maintenance services. Most PI policies have a Supply of Good Exclusion – Also referred to in some wordings as a manufacturer, construction, or installation exclusion.



Errors & Omissions - Claim Example 2 (Chubb)

Manufacturer of Conveyor Systems


Several large distributors filed claims against a manufacturer of conveyor systems, alleging that such systems were defective, resulting in additional costs, late deliveries and lost income.




Common Misunderstandings About A Manufacturers E & O Extension


Errors & Omissions is not a faulty workmanship cover as it will generally not cover the cost of repair, reconditioning, replacement or re-making of the products that you have supplied.


It is not a quasi-professional indemnity cover. If you have a contractual obligation for specific PI cover, this may not 'cut it'. If you are a Professional or providing advice for a fee you should always have their own PI cover.


Manufacturers E & O extension is claims made extension – It requires that claims are notified during the period of insurance. This is different to a General Liability Policy that is typically written on a Claims Occurrence basis.


A claims occurring policy will consider claims which occur during the period of that insurance policy i.e. when the incident or circumstances actually happened determines against which policy (covering that date/period) it falls.



Errors & Omissions - Claim Example 3 (Chubb)

Contract Terminated Due to Supplier’s Error


A claim for compensation is made against a manufacturer of custom bolts by a farm equipment manufacturer for their failure to fulfil a client’s contract. A raw material supplied to the bolt manufacturer by a third party was found to be defective, rendering the bolts unsafe. The farm equipment manufacturer couldn’t use the bolts and terminated the supply contract with the bolt manufacturer.




Which Manufacturers Are At Higher Risk For E & O claims?


Underwriters are generally cautious with high hazard parts, safety critical parts involved in automotive, health or medical parts. The following increases the exposure to E & O claims for a manufacturer:

  • Manufacturing of a component or a raw material used by a third party manufacturer to produce a product.

  • Product made to specifications (not easily sourced elsewhere). Less substitutes are high risk.

  • Outsourcing work to a sub-contractor (outside of control) – what checks do you have in place to make sure of the quality especially overseas contracting parties.

  • Print, package and delivery of materials for clients – e.g. food products. Many food recalls come from labelling issues and non-disclosure of allergens.

  • There have been previous recalls or allegations that products have not met customer expectations.

  • High production runs. Insurers will look at how you batch test and keep track of production batches.

  • High Value of Average and Largest Contracts - Do you have large multi-national clients?

If you are dealing with smaller, retail clients then it is arguably less likely to result in a financial loss to a third party via an E & O claim.

 

What Other Insurance Covers Should A Manufacturer Consider?


Cyber Insurance

Cyber insurance for manufacturers is a coverage that protects businesses against cybercrime and data breaches. Cyber attacks can disrupt your operations, lead to data theft or loss, and cause reputational damage.


The cost of protection includes cyber liability, which covers the cost of third-party losses resulting from a breach, as well as a business interruption (BI) policy, which covers those costs when operations are interrupted.


Product Recall


Product recall insurance for manufacturers covers the costs of a product recall and helps mitigate your financial liability if you are legally required to recall or otherwise discontinue a product. These recall costs are not typically addressed under a General Liability policy.



The Insurely Team Are Here to Help


Let our team of experienced brokers at Insurely take care of your business's insurance needs. We guide our clients on the best coverage, tailored to their needs with full support, all the way through to claim time.


Book a no obligation call with us today at a time that suits you or send us a note below:



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