Professional Indemnity FAQ

Manufacturer's Errors and Omissions

Why Commercial Manufacturer E&O Insurance?

Errors and Omissions (E&O) is an often under-considered exposure for Manufacturers, thinking “I won’t have a claim for that”. However, a rise in the cost of litigation due to product and service disputes is now forcing manufacturers to rethink their insurance requirements.

So why are we seeing an increase in lawsuits?

  • More and more customers are willing to sue long-established business partners for performance and service failure problems.
  • Increases in the average size and length of contracts raise the risk of litigation, which a performance or service failure ‘may be worth the fight’ and results in a large award.
  • As market competition continues to increase, there is a greater chance that marketing and sales pressures will invite over-promising of supplier capabilities.
  • Today, companies are crossing borders to conduct business, which brings a host of new exposures due to foreign laws and regulations.

If you have a client in the manufacturing and / or fabrication industry, take a look at these scenarios and ask yourself whether you have the proper insurance protection.

Defective Part

Damages: $1.6M       Defence and Investigation Expenses: $65,000

A metalworker designed and manufactured a part used in air compressors. The part allowed a slight leak to develop in the compressor, requiring the company to inspect and replace hundreds of compressors. The metalworker was sued for lost revenue due to the defective part.

Substandard Raw Material

Damages: $500,000       Defence and Investigation Expenses: $75,000

An injection moulder of food containers for dairy products erroneously used an inadequate grade of low-density polyethylene in the manufacturing of container lids. As a result, the lids failed to provide a snug seal when displayed or stored at low temperatures, making an entire shipment unacceptable for its intended use. The dairy company sued the mould manufacturer for lost revenue.

Faulty Packaging

Damages: $200,000       Defence and Investigation Expenses: $45,000

A plastics packaging company did not include a warning notice in one batch of headphones it packaged for a client. The batch could not be specifically identified and, therefore, all of the headphones had to be taken off the shelves. The packaging company was sued for lost revenue and expenses.

To learn more about Manufacturers Errors and Omissions coverage, please contact us.

Latest News

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Why we have laws, regulations and Australian standards? Because some people just do the wrong thing all for the sake of making money. The cladding issue is the subject of 4 Corners program on the ABC.

We are already seeing Insurance policies now placing exclusion endorsements into their policies excluding and claims relating to illegal cladding. We are seeing Governments demanding Audits of all existing buildings above a certain height. There are accusations of Builders taking other short cuts such as on Wiring, Pipes and sprinkler systems. 

The question is, who is to blame? Who will take responsibility?

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Small business in NSW

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What is a small business? In order to gain the exemptions, the business must be a small business for Capital Gains Tax Purposes for the income year in which the insurance is effected or renewed. A small business for CGT purposes is: “an individual, partnership, company or trust that is carrying on a business, and has an aggregated turnover of less than $2 million.”

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