Disproving 5 Myths about Errors & Omissions Coverage for Manufacturing Facilities

Imagine this: You operate a manufacturing facility that produces rolling assembly lines. These assembly lines are sold to food facilities, such as a large, wholesale bakery that produces sandwich breads, rolls and baguettes. At one such plant, an installation mistake occurs and your customer is unable to operate its facility and produce food products. Your customer then sues your manufacturing company for loss of business income.

As the saying goes, "To err is human," and this type of scenario is somewhat common. But an Errors & Omissions (E&O) insurance policy can provide your manufacturing facility with insurance coverage when these types of situations arise. Companies that should purchase Manufacturers E&O insurance are those that manufacture, assemble or install products — both within the supply chain and in entirety.

Misconceptions about E&O
I have heard owners of some manufacturing facilities give the following five reasons for not purchasing E&O insurance, but these points of view are misconceptions:
 

1. I already carry General Liability insurance and Products Liability insurance, so why do I need E&O insurance? Holding just General Liability insurance and Products Liability creates a gap in your insurance protection. An E&O policy affords coverage when your company is legally required to pay a third party — your customers — for claims that allege financial loss due to the failure of your product.
    
2. My product isn't faulty, and my employees aren't negligent in design or installation. An E&O lawsuit must be defended, even if it is meritless. You don't have to be at fault to be sued, and frivolous lawsuits generate legal fees. In addition, it can be difficult to determine which component of a machine caused a product failure, and subsequently, a customer may sue all manufacturers in a particular supply chain.
    
3. My customers and I have great relationships. Even if my product malfunctioned, they would never sue me. Many manufacturers want to do what's right by their customers, and it may not be sufficient to simply provide your customer with a new product. If your customer lost business due to failures associated with your product, they may sue your company.
    
4. My products are manufactured here in Canada. Why do I need international E&O coverage? Claims are defended in the country in which they are instituted, and you need an insurance carrier knowledgeable with local laws and who can also provide your company with local legal representation.
    
5. I build my product based upon my customers' designs and specifications.  If they provide approval, how would an error be considered my negligence? As a manufacturer, you may confront a lawsuit for a defective product, and manufacturer's E&O insurance would provide coverage for a negligent act, error or omission with regard to the design, including designs based upon specifications provided by your customer.
    

Don't wait for a claim to find out if your manufacturing facility has gaps in its insurance coverage. Learn more about CNA Canada's coverages for manufacturing companies.

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