Errors and omissions policies can protect manufacturers against loss

Their customers also face these issues, most without really giving it a second thought. The design, development and manufacturing of products used for specific applications that don’t perform as promised can be financially devastating to both the manufacturer and the end user.

The standard general liability insurance policy protects against bodily injury and property damage. It will not respond to financial damages caused by an error or omission in the manufacturing process.

Here’s an example of a potential claim that might arise:

ABC Manufacturing designs and manufactures machines used for welding and drilling. Its customer, XYZ Co., ordered three machines to weld storm doors for housing developments. The machines didn’t function properly and had to be rebuilt. XYZ was not able to meet deadlines. Since the housing development didn’t receive its doors on time, developers sued XYZ and ABC for financial loss.

A manufacturing errors and omissions policy can protect the manufacturer from claims resulting in:

• errors, omissions and negligent acts;

• breach of representations and warranties as to the fitness, quality, performance and use of covered services;

• personal injury and privacy violations; and

• intellectual property infringements relating to copyright and trademarks.

These policies are really applicable to manufacturers of custom products that are used in applications where time and use are critical to business operations. When a product does not perform, and it causes financial loss, coverage can be triggered.

Typical services that are covered include the design, development, manufacturing, selling and value-added reselling of products for others. Marketing, selling, licensing and distribution of the manufacturer’s own products also are included. Additional covered items include the installation, training, support, maintenance, service and repair of the manufactured product.

These types of insurance policies can be purchased with limits up to $5 million and deductibles starting at $2,500. Some products are harder to obtain coverage for, such as aircraft, weapons and medical applications.

If you’re a manufacturer of custom, critical products, this is a risk you might want to insure. Policy premiums are fairly reasonable and start at $2,500.

Manufacturers are very unique, and this type of policy may not fit every business. However, it can be an important part of an overall risk-management plan. Contact your agent and explore options and costs if the risk is apparent.

Richard Ollis is president of Ollis and Co., an employee-owned, independent insurance agency. He can be reached at richardo@ollisco.com.