Contractors Errors and Omissions (E&O) Insurance
Contractors E&O Insurance is an often overlooked optional coverage for the business risk of damage occurring to the contractors’ work. Some contractors may want to close a coverage gap from the universal exclusion in Commercial General Liability (CGL) policies for “property damage to that particular part of your work…”. Thus, a plumber who floods a building he is working on (or finished working on) may be covered for resulting damage to the building, but won’t be covered for the plumbing or plumbing work itself. This is sometimes known as “Faulty Workmanship” coverage. It is also distinguished from “warranty” coverage, in that there must be actual damage, not just a product or system that doesn’t function properly.
This unique coverage has several important features:
-- Covers damage to “your work” due to negligence, errors or omissions .
-- Damage must be unintentional (no risky shortcuts).
-- The damage must occur after the job is completed, not during.
-- Coverage is “claims made”, not “occurrence” (see your agent for explanation).
-- Work of subcontractors is not covered – only direct work is covered.
-- E&O is not the same as Professional Liability, which addresses design or advising errors.
A further example illustrates how Contractors E&O works. Sparky Electric installs a lighting system in the ceiling of Big’s Where House. Sparky knows that if in the course of construction he negligently and unintentionally makes a mistake that results in burning down Big’s building, he has Premises & Operations Property Damage Liability coverage under his CGL policy. He should also know that damage to the fixtures and wiring (“your work”) would only be covered if (a) he carried Contractor’s E&O, and (b) the damage occurred after the job was completed. (In that case the building damage would also be covered under Completed Operations Property Damage Liability of the CGL policy).
Since Contractors E&O covers only the contractor’s work – and not the possibly unlimited “third party liability” for Bodily Injury and Property Damage to others, the limits and cost of this coverage are usually much lower than for CGL. Only the conceivable cost to replace, repair or “do-over” the work needs to be considered. Like any other optional insurance, the justification for bearing this additional cost of coverage should be considered within a cost / benefit risk management analysis.
The professionals at ISA are glad to assist in the analysis, availability and pricing of this potentially important coverage.
Jim Stickney, President - Insurance Service of Asheville