Errors & Omissions Insurance for Contractors
Errors and omissions insurance (also referred to as professional liability insurance) covers a business or a professional if a client takes legal action against them for failure to provide a promised service or advice, negligence, or errors. As a contractor, having errors and omissions insurance (E&O) can protect you in your trade for any potential damages you may cause unintentionally, including the usage of defective materials, failure to finish a job by the deadline laid out in your contract, or defective workmanship, for example. You are skilled at what you do, and you take pride in it – but that doesn’t mean that accidents don’t happen! It’s a good idea to be prepared for when they do.
Contractors errors and omissions insurance is imperative to any general contracting professional who does not offer a design service but still offers some form of professional services. Because insurance is rarely straightforward, we have compiled a short guide to contractors E&O, how it works, and why you may need it as a contracting professional.
What is Contractors E&O Insurance?
The exact claims that will be covered by your contractors errors and omissions insurance policy will vary largely by the carrier, so you will want to review your own policy’s wording before assuming the same is true for your own coverage. That being said, it’s commonplace for all contractors E&O policies to include similar features and coverages. Here are some examples of what may be covered by your contractors E&O insurance policy:
- Errors and omissions for contractors might cover you if you are held liable for misrepresentation. This would be if your client believes that the information you have provided or your general services are misleading, resulting in their financial loss.
- Your E&O insurance policy may cover you if it is determined that your recommendations and/or your installation/design were flawed, resulting in a client’s financial loss.
- An E&O insurance policy for contractors might cover alleged wrongful acts. This means negligence, whether it resulted in property damage to your finished product, your work, loss of use, recall, or liability. Wrongful acts that are insurable may arise from your unintentional work, on your behalf, by your workmanship, or by the usage of faulty materials or equipment.
- Claims alleging that financial loss resulted from the contractor’s use of defective materials may be covered by your E&O insurance policy. Coverage could kick in if an investigation is launched that determines that even while your design/installation was correct, the materials being used were faulty.
In conclusion, contractors errors and omissions insurance is designed to protect your business from lawsuits alleging faulty workmanship, cover the costs of any property damage that resulted from you or your business installing material that was later learned to be defective, and cover the costs to defend you and/or your business in the court of law.
Types of Contractors Who Need E&O Insurance
The common rule of thumb for E&O insurance is that so long as you perform a type of work that involves a professional service or advice, you’ll likely require errors and omissions insurance. A sampling of the types of contractors who may benefit from errors and omissions insurance are listed below:
- Audio contractors
- Concrete contractors
- HVAC technicians
- Telecommunication contractors
- Window installers
This is only a small portion of the contractors who may benefit from purchasing contractors E&O insurance. If you are a contractor but do not see your profession in the list above, you may discuss with Hitchings Insurance Agency representatives to review your occupation and whether purchasing errors and omissions insurance is a viable and beneficial option for you.
How Much Does Contractors E&O Insurance Cost?
E&O insurance for contractors varies in cost depending on the contracting business you operate, including the following factors:
- Your annual revenue
- Size of your company
- Claims history
- Your licensing
- Geographical location
Here are some examples of contractors E&O insurance policy average pricing:
- A sole proprietorship may pay $500- $800 per year for $500,000 coverage.
- A business with up to 5 subcontractors may pay up to $2,000 per year for $500,000 coverage.
- A business could also be afforded some contractors E&O coverage by various commercial contractor general policy endorsements.
Risk Management for Contractors
No amount of insurance can replace the value of good risk management practices. As a contractor, you are highly skilled at what you do, and it’s imperative that you uphold the highest-level business-standard not only to ensure you attract quality contractors but also so that you may significantly reduce your chances of being involved in a lawsuit at all. Insurance may cover you, but you’ll still have to go through the legal process and file a claim. Moreover, the fewer claims you make, the lower your insurance premiums will be. You may find the following measures to help support your practice’s reputability:
- The upkeep of quality control. Faulty workmanship can arise from the usage of poor-quality equipment and materials. It’s worth investing in quality deliverables to ensure that your business stays with your industry’s standards.
- Keep track of your company’s data and information. In client meetings, write down notes to confirm the details of what is being discussed. This ensures that you are on the same page as your client and minimizes the risk of failing to meet the terms of what was outlined in your contract or overshooting your deadline.
It helps to maintain clear and constant communication with your clientele, subcontractors, and any additional parties. Everyone should be clear on what their roles are in your project, and any expectations being set are realistic.
Good risk management may not prevent a lawsuit, but it can significantly reduce your risk of being involved in one. It may also save you some hassle later down the line.
For more information regarding contractors errors and omissions insurance, and if it’s something that you, as a contractor, should be considering, discuss with a Hitchings Insurance Agency representative today.