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December 21, 2023

A guide to the value of manufacturer’s errors & omissions (E&O) insurance

There are about 623,000 manufacturing businesses in the United States as of 2023, according to IBISWorld. This is an increase of .7% from 2022, and this growth isn’t slowing down anytime soon. With competition among companies spiking and factories attempting to produce more goods faster, industry leaders are finding new ways to get a leg up on brands vying for their target market. One way plants are accomplishing this is through the introduction of innovative technologies into daily tasks.

As digital and physical operations continue to evolve, manufacturers work to adapt processes and modernize procedures to enhance their products and meet customer demands. The problem is the rapid rise of digital transformation invites new risks that industry professionals may not be protected from.

From supply chain problems and inflation to talent shortages and global uncertainty, manufacturing professionals face many challenges that must be addressed to move forward securely and confidently. A route companies should consider is manufacturer’s errors & omissions (E&O) insurance.

Let’s look at the pros of this type of coverage and get a better understanding of how this plan could protect against claims of inadequate work and negligent actions.

Understanding manufacturer’s errors & omissions insurance

E&O for manufacturers is a subset of professional liability insurance that protects companies, their workers, and other involved professionals against cases of negligence or material defects, and any associated damages and financial losses.

You may assume that a commercial general liability policy would cover instances of delays in production or significant financial loss caused by missed deadlines or a product recall. However, many cases aren’t fully protected with just a general liability policy. That’s why manufacturer’s E&O coverage is crucial for companies that produce goods of any kind.

What E&O insurance covers

The types of coverage options will vary depending on what your company’s specific needs are, the policy you choose, and the issuing insurance company. Generally, E&O insurance covers:

  • Oversights, errors, or mistakes incurred during work
  • Professional negligence, material defects, or an omission of important details
  • Failure to meet a deadline or deliver a service promised to a customer
  • Breach of contract
  • Inability to meet a specific standard of care, specifically one outlined by a given profession

E&O coverage may cover legal and court costs if a manufacturer needs to defend themselves against a lawsuit. This can also include attorney and other legal fees if the business is found guilty.

While the limitations of E&O insurance coverage depend on the policy, criminal prosecutions and other liabilities that occur in civil court but aren’t listed in the policy may not be taken care of. The insurance also doesn't cover temporary employees, claims from work done before a policy was enacted, claims in certain jurisdictions, or information leaks due to cybercrime.

Liability insurance and the current domestic manufacturing landscape

The COVID-19 pandemic left manufacturing with several challenges that companies still face head-on. The top supply chain problems from 2021 to 2022 were port congestion, manufacturing delays, and extreme weather conditions like hurricanes, tornadoes, and wildfires, according to Extensiv.

While some circumstances have improved, manufacturing plants still deal with problems like material scarcity, increasing freight costs due to inflation and unknown customer demand forecasting. These negative elements directly impact companies that work on tight deadlines and depend on third-party suppliers to provide parts and materials on time.

Another big problem affecting industry professionals is attracting and retaining talent. Because hours can be long and working conditions aren’t always the most ideal, it’s difficult to keep people engaged and consistent in their work. Finding skilled workers and filling empty positions is extremely difficult, which makes it almost impossible to accomplish business objectives in a timely manner. Research by Deloitte found that attracting and retaining a quality workforce is a top focus for 83% of manufacturers, and almost 45% of industry leaders have turned down business opportunities due to a lack of employees to get the jobs done.

By incorporating E&O insurance coverage into your company’s risk management strategy, you can better protect your employees and improve customer experience and satisfaction.

Why is E&O insurance important?

This type of professional liability insurance serves manufacturers by shouldering some of the financial burden of potential legal trouble and gives industry professionals more peace of mind. Because manufacturing is a risk-heavy business sector, it pays to have an extra layer of protection between your company and potential threats.

Here are the main benefits of adding E&O coverage to your insurance tool belt:

Risk mitigation

Manufacturing processes are complex with many moving parts, stages, and stakeholders. Mistakes can happen at any point in the production process, from design and engineering to production and distribution. E&O insurance helps reduce the risk of financial loss due to errors, omissions, or negligence at any manufacturing phase.

Regulatory compliance

Like many industries, manufacturing is held to specific standards put in place and regulated by compliance rules. Failure to comply with these mandates can lead to legal and financial consequences like fines or penalties that can be extremely costly. In fact, the National Association of Manufacturers found that the average manufacturing company pays about $19,564 per employee to comply with federal regulations. Some retributions can cost businesses even more. With E&O insurance coverage, companies can get financial relief from fees resulting from regulatory violations.

Financial protection

Defending against lawsuits can be expensive, even if a manufacturer isn’t found liable at the end of the trial. This type of insurance helps cover the costs of getting sued, including attorney fees, court costs, and settlements. And lawsuits aren’t the only financial risks tied to manufacturing. E&O coverage also helps protect against claims related to product performance and inadequate labeling or instructions, furthering the protection against potential costly setbacks.

Reputation protection

In the event that a product your company creates has a defect or error, it can be a hard hit to your reputation. Moreover, bouncing back after a problem is made public is very difficult, potentially harming the relationships you’ve built with your customers and stakeholders. Having E&O coverage in place can provide help with public relations efforts to lessen the damage done to your notoriety.

Protect your manufacturing business today

The world of manufacturing errors & omissions doesn’t have to be navigated alone. Marsh McLennan Agency is dedicated to providing companies with solutions to better protect against threats and keep businesses on their feet.

Want to learn more about our premiums and coverage options? Reach out to one of our specialists today to discover the most strategic approach to suit your company’s needs.