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Why Every Contractor Should Have E&O Insurance

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Most contractors carry general liability insurance policies. However, very few understand the need for additional comprehensive errors and omissions coverage. To protect themselves from the costly results of unintentional work errors, contractors must have E&O insurance. There are several important issues to consider about this type of coverage.

Contractors are prone to errors and omissions claims. The business risks they face on a daily basis may include unintentional damage to the insured party, impairment of property, damage to products or a wide variety of other damages. Since most courts are quick to rule against contractors in these types of claims, they are much more vulnerable to trouble. Although many individuals view this coverage as unnecessary, it is important to remember that a simple liability policy does not offer coverage for damages due to errors and omissions. This means that contractors are financially responsible for the costs resulting from client claims. Keep in mind that only E&O coverage offers protection to contractors who face these issues.

Always choose insurance companies that have experience with contractors. It is important to work only with companies that have a solid history of E&O practices specifically with contractors. Policies designed for contractors have special clauses and inclusions that are not found in other E&O policies. The best practice is to avoid relying on coverage titles, and carefully review the document's provisions. While every contractor benefits from this special coverage, it is especially important for those who work on design build projects or in construction management. A contractor's E&O document is written as a claims-made form, which means that it covers omissions and errors occurring during the policy's period. Incidents occurring prior to the enactment of the policy are not covered.

Carefully read the fine print of the policy. E&O insurance for contractors often has stipulations limiting the coverage capacity named in the policy. This emphasizes the importance of purchasing a policy that is designed to specifically describe the various types of coverage provided. Keep in mind that coverage does not include damages caused by subcontractors. For this reason, general contractors should always hire subcontractors with steady records of quality work. Paying the price for substandard work performed by others is always costly. In addition to being fully aware of what policies provide, contractors must specify their desired coverage. It is important to remember that not all E&O policies offer coverage for legal expenses.

Although all contractors makes mistakes, only those who properly protect themselves are able to recover. Susceptibility to legal action and the high risk of claims are two issues every contractor should keep in mind. Litigation can be costly, so having a solid E&O policy provides security. 


Click here to return to Amity Insurance E-Newsletter March 7, 2012.