Why you could need contractors’ E&O insurance
The importance of contractors' E&O and how it can keep you protected.
by AZ, CO, UT State Auto Commercial Lines Team
The construction industry is growing and becoming more complex at the same time. For a contractor, this means keeping up with marketing, hiring and design-build trends. Oh, and making sure all aspects of your work are covered by insurance.
According to The Associated General Contractors of America, there's already over 6 million contractors employed in the construction industry in the United States and we're expecting to see 3 in 4 construction firms add more jobs this year. That's a lot of jobs to be filled by a workforce that has continued to dwindle since the economic downturn. More work to go around, with fewer skilled laborers available, can cause headaches for any contractor employer.
Adding to the complexity for contractors and sub-contractors is the trend toward design-build processes in construction projects. With more collaboration among designers and builders, contractors may take on more - or different - work than before. For contractors, this opens up a lot of opportunity and naturally some added potential.
Unfortunately, the risk of a client lawsuit may increase with changes in your contracting business. The good news is that insurance products are available that may cover you if faced with some of the common reasons that lead to a client lawsuit:
- Making a mistake that costs the client money, time or their reputation. Your mistake now means additional materials or time is needed, and maybe you miss a deadline. Maybe the client was critically dependent on that deadline being met and now their reputation has suffered.
- Failing to deliver promised services … you're hiring fast and things can go wrong. And the lawsuit doesn't have to be warranted in your opinion - you'll still need to defend yourself.
Other common situations that could lead to a lawsuit may involve giving poor advice or recommendations and failing to protect the client's best interest. Again, you may not agree, but the lawsuit may still need to be faced, and you need insurance to cover the defense and possible penalties.
This is where contractors' errors and omissions (E&O) insurance is critical. E&O insurance is a form of liability coverage designed to protect contractors from potential claims that result from errors and/or omissions in their work. Simply put, it covers your professional errors and oversights.
You might think your existing insurance covers this, but there's a real possibility that it doesn't, so make sure you check. Your general liability policy likely doesn't cover you for professional mistakes that cause damage.
Contractors are so important to the construction industry and our economy. A lot of great work gets done thanks to you! But sometimes, even the smallest customer complaints can quickly escalate to a lawsuit. Make sure you're protected properly.
This blog is intended for general information purposes only, and is not an insurance policy. Information contained in this blog was obtained from sources believed to be reliable, however State Auto makes no representations or guarantee as to the correctness or sufficiency of any information contained herein, nor guarantees results based upon use of this information. State Auto does not warrant that reliance upon this document will prevent accident or losses, or satisfy federal, state or local codes, ordinances or regulations. Eligibility, coverages, discounts and benefits may vary by state. Coverages described are subject to definitions, limitations and conditions. Please read the policy forms and endorsements for details.