Will your current insurance program provide coverage if your customer sues you for their financial losses due to an error in your manufacturing process/services?
You might be thinking this would be covered under your General Liability policy, but in reality, it’s most likely not. This scenario would be covered by Manufacturer’s Errors & Omissions Liability.
The reason your General Liability policy would not provide coverage is because the claim is for financial loss and not bodily injury or property damage.
Some General Liability carriers can extend coverage for Manufacturer’s Errors or Omissions Liability by endorsement or coverage can be secured on a stand-alone policy.
In general, Manufacturer’s Errors & Omissions Liability provides coverage for third party financial loss claims arising from wrongful acts that occurred during the manufacturing process. These include:
- Flawed Design / Development
- Faulty Manufacturing
- Improper Installation
- Inadequate Training
Coverage can be found for warranty/representations (relating to fitness, quality, durability, performance) and delay in delivery/performance claims, but only as a result of a wrongful act in the performance of the manufacturing process/service.
Typical policy exclusions include: bodily injury, property damage; product recall and costs to inspect, repair or replace.
Coverage offerings vary by carrier whether provided via endorsement or stand-alone policy.
The insured agreed to manufacture a food handling system for a large food-maker. The system included conveyor and robotic components for moving and packaging the food. The contract required that the system handle a certain volume of food per hour. The food-maker alleged that the system was unable to operate at the speed specified in the contract in order to process the required volume of food. The insured took extra steps in an effort to make the system operate faster. The food company still complained that it was unable to meet production demands with the system and was incurring additional costs in compensating for that with manual labor. The food maker ultimately determined that the system was inadequate and had to be removed.
Eligible for coverage:
- The costs of defending the insured.
- The food-maker’s claim for the additional cost of manual labor.
Not eligible for coverage:
- The food-maker’s demand for a refund.
- The additional costs the insured incurred in trying to make the system operate faster.
(Source: 2016 Hudson Insurance Group)
About the Author:
Lisa Altekruse is a Client Manager with more than 25 years of insurance industry experience. She works in the area of Executive Risk in the Property & Casualty Department. Her current responsibilities include managing the Executive Risk lines of coverage for existing and new clients with a focus on manufacturing and life science business. She identifies and designs programs to appropriately cover exposures.
Note: This communication is for informational purposes only. Although every reasonable effort is made to present current and accurate information, Oswald makes no guarantees of any kind and cannot be held liable for any outdated or incorrect information. View our communications policy.