A Contractors Errors & Omissions General Coverage Explanation
No one becomes a contractor without sufficient experience, dedication, and attention to detail. Trying to operate a legitimate construction company is difficult when you’re faced with the competition of all the other construction companies posing to be legitimate. Not to mention the fact that the industry can be extremely volatile, with prominent “boom and bust” cycles. As such, you might imagine that being a contractor means minimal room for error. But even the most seasoned GCs will encounter issues every now and then, and it’s important to be prepared when problems do arise, such as having contractors errors and omissions insurance.
Errors and omissions, or E&O, is one type of liability coverage that is specifically designed to help certain businesses, including contracting businesses and a variety of trade specialties. This provides protection from financial losses due to oversights, mistakes, or negligence that could arise during the course of providing their services.
In this article, we will go over the benefits of including errors and omissions insurance in your risk management repertoire as a general contractor, and some ways that E&O can help protect your company from financial losses.
What is errors and omissions insurance for general contractors?
Errors and omissions insurance is beneficial for many other industries, and general contractors are no exception. E&O is a form of liability insurance that will typically cover any legal fees and associated expenses that come with defending your business against a lawsuit. It may also cover you for any judgments or settlements that may be awarded.
Contractors may be at risk of the following common types of errors and omissions claims:
Failure to complete a project by the proposed deadline.
Inadequate work or failing to meet the project specifications.
Failing to communicate adequately with clients.
Failing to acquire necessary approvals and permits.
Accidents that may occur on a job site.
It may also be a point to note that some construction projects will contain a condition where you will need to acquire E&O insurance before you begin any work, and the client will likely want to be included as an additional insured on your policy.
Who needs errors and omissions insurance?
The scale of your business and the trade you specialize in may determine whether or not you need errors and omissions insurance, but there is a sizeable list of common contractors who may benefit from purchasing contractors’ errors and omissions insurance.
That list includes:
Renewable energy contractors
Errors and omissions policies are very common in the construction industry as a whole, even if they vary in exact specifications from business to business and carrier to carrier. Part of our job at Hitchings Insurance is to ensure that our professionals find you the policy most customized to your needs.
What are the three distinct coverage(s) that errors and omissions insurance includes?
Errors and omissions insurance includes three distinct coverage(s) that virtually all policies include coverage for. The coverage(s) are errors and omissions as a result of faulty design, the usage of defective/faulty materials, and faulty workmanship.
Errors and omissions as a result of faulty design is when you provide pre-installation design work or recommendations on the sizing of product(s) that turns out to include a flaw, which causes the project to fail in serving its intended purpose or causing damages/injuries.
Usage of defective materials is as the name implies. It’s when your business fails to utilize sufficient materials or equipment (such as defective electrical panels, tiling, which results in a defective product that causes an incident.
Finally, faulty workmanship simply means a mistake during your work. It can happen to the best of us. It could be a project delay, failure to properly install, or damages. Luckily, E&O covers most costs pertaining to a faulty workmanship claim.
What doesn’t errors and omissions insurance for general contractors cover?
Like any insurance policy, errors and omissions insurance has its limitations. While it can cover a lot of different claims, it will not offer coverage for the following:
Illegal or intentional harm, injuries, or damages
Bidding inaccuracies (underbidding a job and taking a loss on a project)
Pollution or hazardous waste (although there is a policy for this – it just isn’t generally included in errors and omissions insurance)
General liability claims (these would fall under the scope of a general liability policy)
Mistakes in providing legal advice, title checks, or advice/suggestions on something out of your scope of practice
Physical damages and losses
How much does E&O insurance cost for general contractors?
While annual premiums for errors and omissions insurance for contractors ranges anywhere between $500 to $1,000/year, actual costs vary based on your industry, coverage limits and options, the type of work you do, where you do your work, and other factors.
You can get the best prices by working with an insurance professional, like those at Hitchings Insurance. We help ensure you get the E&O insurance most fitted to you and your business’ needs, the coverage that meets your contract’s requirements, and the one that comes with the best price tag.
Also, keep in mind that as general contractors, you likely need more insurance beyond what errors and omissions insurance can cover. Your “all-encompassing” policy might also include coverage(s) like general liability insurance, commercial property, commercial auto, and equipment breakdown. Pricing out errors and omissions insurance is just one aspect of what should be a comprehensive contractors insurance policy. Consult with a Hitchings Insurance professional for more information on how to adequately insure your business.
What are some E&O risk management tips for contractors?
Errors and omissions is just one part of an overall risk management strategy designed to minimize risks and losses for your business. You should also have practices in place used to safeguard your business and reduce the opportunity for losses overall.
Risk management includes risk transference (buying insurance is one example!), risk avoidance, risk acceptance, and risk mitigation. Some examples of risk mitigation for contractors can include:
Diligently screening subcontractors and employees before bringing them on a job.
Ensuring all parties involved with a project are clear on the terms of a contract to mitigate the risk of project delays and missing deadlines.
Adequately checking and maintaining materials or products to avoid the risk of potentially defective equipment.
Implementing procedures for double, triple, and quadruple-approving designs before using them in a project.
Implementing procedures for communications and who each individual working on the project should be required to report to.
Avoiding taking on any work that might be out of your business’ scope of practice.
These are just some examples of different risk management strategies that your business could implement to ensure everyone is kept on the same page and that the odds of a loss occurring are lessened. Of course, even with these practices in place, losses can still occur, so it’s important to have a fully comprehensive errors and omissions plan in place – just in case. Discuss today with a Hitchings Insurance team member for more information on errors and omissions insurance, and how it may be of benefit to your business. Or, if you’re ready to begin, request a free quote today and start protecting your contracting business.