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Errors and Omissions Insurance for Contractors

Contractors Errors and Omissions Insurance

Get a quote on Errors & Omissions Insurance

As a contractor, you know that mistakes can happen, and one tiny error could lead to thousands of dollars of your work being damaged or destroyed. Contractors Errors and Omissions Insurance is meant to provide financial protection for any damage to your work caused by your mistakes, negligence, or omissions.

What is Contractors Errors and Omissions Insurance?

Contractors Errors and Omissions Insurance (Contractors E&O) is a type of liability insurance for trade contractors such as plumbers, electricians, HVAC contractors, painters, carpenters, and others. Contractors E&O protects the value of the work that you do if it is damaged due to unintentional faulty workmanship. Your commercial general liability policy will protect you from damages that your work causes to other property, but your company’s work is excluded from general liability coverage.

Example:

What does Contractors Errors and Omissions Insurance cover?

Contractors E&O covers damage to your work, product, or impaired property that occurs after the job is complete and that results from your negligence, errors, or omissions.

In the event that your company is held liable, E&O would cover the cost to repair or redo faulty work, as well as any legal defense against those claims. Importantly, Contractors E&O is distinct from professional liability insurance, which covers errors in design or advising.

Traditionally, Contractors E&O coverage was intended for general contractors and other larger businesses. It wasn’t affordable for small contractors such as plumbers, electricians, HVAC contractors, painters, and carpenters, despite customers becoming more demanding and escalating more complaints into claims and lawsuits. To respond to the need, insurers in recent years have started to offer Contractors E&O insurance for smaller contractors with a range of deductibles and limits.

Examples:

How broad is the coverage?

There is no standard form for Contractors Errors and Omissions Insurance. Some insurers will offer broad coverage while others will offer much more narrow coverage. Generally, insurers will write the policy to cover the activities that you specialize in. If you are a plumber, the insurance policy will cover plumbing and related work. If you also do heating and cooling and electrical work on the side, your Errors and Omissions policy may not cover these types of jobs unless you inform your insurer and write it into the policy.

What doesn’t Contractors Errors and Omissions Insurance cover?

Contractors Errors and Omissions Insurance is intended to help cover some of the gaps left by the commercial general liability policy. Contractors E&O doesn’t duplicate coverage for damages that the commercial general liability insurance policy already covers. This includes third-party liability for:

Example:

Contractors should take note, however, that having both the commercial general liability policy and Contractors E&O doesn’t mean your business will be covered for every liability. This is particularly important because Contractors E&O policies are typically non-standard, meaning coverage details vary widely by insurer. It’s important to carefully analyze what is included and excluded in both policies to determine where coverage gaps remain.

Intentional Acts

Contractors Errors and Omissions Insurance also does not cover intentionally dishonest acts that cause damage to the value of the work. Let’s say a contractor knowingly substitutes cheap materials or otherwise cuts corners to save money, and it results in damages to the value of the work. The resulting damages will not be covered by Contractors Errors and Omissions Insurance.

Work in Progress

Errors and Omissions Insurance for contractors only applies to damages to the work and the product when the work is completed, so any work that is still in progress won’t be covered. For coverage of work that is in progress, consider purchasing an installation floater.

Subcontractors

Work done by subcontractors is usually not covered, and you may want to encourage your subcontractors to secure their own Errors and Omissions Insurance. Coverage is limited to the contractor’s owners and employees, including partners, executive officers, directors, managers, and workers.

For Contractors E&O underwriters, the highly variable quality of subcontractors makes it risky to underwrite. Some contracting firms may hire reputable subcontractors while others may retain the services of the lowest bidder. By excluding subcontractors from coverage, underwriters can more easily predict the risk associated with this coverage.

How much does Contractors Errors and Omissions Insurance cost?

The cost of Contractors Errors and Omissions Insurance depends on a number of factors, including the type of business you run, your industry, and coverage limits. While the range of pricing can vary widely, most small business owners can expect to pay annual premiums between $400 and $1,000.

In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer Errors and Omissions Insurance:

ProviderErrors & OmissionsProfessional LiabilityGeneral Liability
CoverageSmith✔️✔️✔️
CoverWallet✔️✔️✔️
Embroker✔️✔️✔️
Hiscox✔️✔️✔️
Thimble✔️✔️✔️

Claims-made Policy

Contractors Errors and Omissions Insurance policies are written on a claims-made basis, meaning that the insurance coverage is triggered when the claim is made, rather than when the error, omission, or negligent act took place. However, it’s important to note that many claims-made policies have a retroactive date. Acts that took place before the retroactive date are not covered even if the claim is made while the policy is active.

Example:

Deductibles and Limits

For Contractors E&O insurance, you will typically have a deductible per job, a limit per job, and an annual aggregate limit. For example, you could have a $750 deductible per job and a $5,000 limit per job, and an annual aggregate limit of $30,000.

Is Contractors E&O Insurance the same as professional liability insurance?

Contractors Errors and Omissions Insurance should not be confused with professional liability insurance for contractors. Professional liability insurance covers your client’s economic losses caused by work errors, undelivered work, misrepresentation, or negligence on the part of the contracting firm, typically to cover exposures from construction management and design-build work. Meanwhile, Contractors E&O covers property damage to your own work or product caused by errors, omissions, or negligence.

Final Word

While commercial general liability policies cover many of the liabilities a contractor can face while working on a project, it does not provide coverage for damage to the contractor’s own work or product due to mistakes or negligence. Contractors E&O fills that coverage gap for contractors, plumbers, electricians, HVAC contractors, painters, carpenters, and others, though key exclusions include intentional acts, subcontractors, and work in progress. It’s also important to understand the breadth of coverage as Contractors E&O is often specialized to your particular trade.

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