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

D&O premium pool ‘must treble’ to return to profitability

A new report – called "Show Me The Money!" by insurer XL Catlin and law firm Wotton + Kearney – is the second in a series of three white papers on securities class actions and their impact on the Directors & Officers Liability (D&O) market. The main conclusion is that Directors’ and officers’ (D&O) insurance premiums are under-priced significantly and need to rise strongly to restore profitability. The main risk areas are those exposed to securities class actions, 

It says Directors & Officer's Side A, Side B and Side C cover has been chronically underpriced since at least 2011, while the frequency of class actions is increasing as more plaintiff lawyers and litigation funders enter the space.

The analysis suggests last year’s overall premium pool of about $210 million would need to increase by at least three times to establish a profitable market, if it is assumed all other factors stay unchanged.

“Recent market developments would indicate most D&O insurers are now endeavouring to restore some semblance of profitability to their portfolios after years of market losses,” the report says.

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75% of Cyclone Debbie claims settled

In the 6 months since Cyclone Debbie devastated Queensland and parts of northern New South Wales:

• more than 31,000 homes and business have been repaired or received settlements from their insurance company

• more than 20,000 families have had possessions replaced

• more than 4,500 motor vehicles have been repaired or new vehicles provided

• hundreds of local builders and trades have been working on properties to repair the damage and destruction caused by the cyclone

• over $5 million has been paid EACH DAY to assist local communities, residents and businesses.

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