Errors & Omissions and Product Recall Coverage Can Help Manufacturers Cover Losses

November 2, 2022

The manufacturing industry continues to grow and modernize, contributing over $2.3 trillion to the U.S. economy. As manufacturing processes are enhanced through new technology, these changes can also present risks. To mitigate these risks, insurance coverages such as a manufacturers’ errors & omissions policy or product recall policy are available to provide manufacturers added peace of mind when creating and distributing their products.

How Does Errors & Omissions Work?

Errors & omissions (E&O) coverage can help provide valuable protection to manufacturers beyond typical liability coverage by covering a customer’s financial loss and a policyholder’s potential legal costs.

Typically added to a general liability policy, E&O extends beyond basic coverage to provide security against financial loss caused by negligence in the design, manufacturing or installation of a product. This helps protect manufacturers from lawsuits alleging they are responsible for financial loss.

An Example Scenario: A manufacturer called Clock Flower designs specialized metal gear components for clocks. One of their clients, a company called Tick Time, discovers that one of their clock brands is not working properly due to a flaw in Clock Flower’s metal movement gear. Tick Time had to spend considerable resources swapping out the faulty component and, in turn, sues Clock Flower for costs associated with removing and replacing the metal gear related to the design or manufacturing defect. E&O coverage would help indemnify Clock Flower for the costs to defend and resolve Tick Time’s claims.

How Does Product Recall Work?

A product recall is the action of retrieving a defective or unsafe product from the market. Up to 400 U.S. products are recalled annually by the Consumer Product Safety Commission.

Product recall coverage helps to protect manufacturers from the unexpected risks and financial burden that can be associated with recalling a product from the market. This can include coverage for inspection or testing of products to determine if a product recall is justified, crisis management staffing, packaging and transportation of defective products (and disposal of products that cannot be reused), and reasonable costs to regain customer faith and approval. Sometimes the insurance protection can even help cover the costs for the manufacturer to repair, replace or repurchase the product.

An Example Scenario: A candle manufacturer called Candles Chandlery manufactures a double-wick candle, and suddenly finds out that their candle’s double wick burns too high, causing the candle to break, and must take steps to recall the product from the marketplace. Product recall coverage can help pay for the costs associated with the recall.

Protection Forged in Partnership
Amerisure is expanding its focus on the manufacturing industry by investing in our products and people who provide the expertise you rely on to help protect your manufacturing business. Learn more about the unique coverage and technologies to complement your manufacturing programs, including our new products, expanded appetite to provide industry-leading service to more manufacturing businesses, and an increased investment in our expert employees with manufacturing knowledge.

Resources for Policyholders
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