If you’re a general or specialized contractor, your work probably involves a lot of manual labor. Therefore, you usually spend a lot of your time assembling projects and committing time to making sure the work goes off without a hitch. However, there are times when you could make mistakes throughout the course of your services. If you do, your liability insurance might cover the losses caused to others. However, you might need a very specific type of coverage if your advice or consultations cause harm to other parties. This is professional liability insurance, also called errors & omissions or E&O coverage. Not all contractors need this protection, but here’s why you should consider it.
What’s an E&O Policy
Most contractors need at least a general insurance policy within their business insurance portfolio. This coverage protects contractors in case they cause bodily injuries or property damage to third parties, like clients, in the course of working with them. So, if you are remodeling someone’s bathroom, but wind up causing a fire that damages part of the house, you might have to use this coverage to compensate the other party for the losses they sustained.
However, general liability policies usually only apply to damage caused by your actions. They won’t necessarily apply to cases where inadequate services caused damage to others. That’s where errors & omissions policies can come in handy.
An E&O policy might cover the losses you cause to others through improper advice or inadequate work. Typically, this coverage applies to white-collar professions like lawyers and CPAs (in the medical field, it’s another name for malpractice insurance). So, for example, if a lawyer makes a mistake when advising a client, then you might need this coverage to help you pay for the costs of settlements or lawsuits
Why Contractors Might Need Coverage
As someone who does physical work or manual labor, you might not think you need E&O coverage within your contractors insurance policy. That’s not necessarily true.
Contractors often provide a lot of services besides just building projects. Therefore, if you make mistakes when providing these services, then you might have to compensate a client because of your negligent or faulty work.
Suppose, for example, that you are not only the contractor, but also run a construction consulting business. Perhaps you provide advice to individuals on how to complete a wide variety of projects, besides doing the work itself. If it comes out later that you misrepresented to your client various aspects of the project, they might sue your company for the losses you caused. Therefore, an E&O policy might be able to help you cover the settlement and legal costs that might arise in these cases.
Or, look at another common service that a contractor might provide—inspections. Suppose that you inspect a home, either before someone moves in, or during the course of their residence there. You might miss something, like damaged electrical wiring, which you should have caught. If that electrical problem causes a fire later, the client might allege that your negligence contributed to the cause for the fire. An E&O policy can help you with your response to such allegations.
One key thing to remember about this coverage is that it can apply even if a lawsuit proves totally unfounded. Perhaps, for example, there was no way your inspection process or rules would have led you to discover the fire risk existed. That doesn’t mean a client still can’t sue you. An E&O policy can therefore assist you with the related legal costs, even if you never wind up facing a court settlement.