As 2020 comes to a close, now is the time for you to evaluate your current level of contractors’ insurance and make sure it fits your business’ needs. Working as a contractor and owning this type of business, various insurance types need to be a part of your contractor’s insurance, including liability insurance, workers compensation, and insurance-related to different projects meant to make sure the project is completed on time.
Along with these traditional insurance policies, you will also need E&O insurance. What is E&O insurance, and why do you need it as part of your contractor liability insurance coverage?
What is E&O Insurance?
E&O insurance is known as Errors and Omissions Insurance. This insurance is a form of liability insurance that is meant to cover employees and employers in the case of clients’ claims of negligence or inadequate work. These policies will cover legal costs associated with any of these claims. They can also pay the settlement or at least a portion of the settlement, depending on the policy’s terms.
One example of a situation where you would need this insurance is if a client sues you for errors they claim were made in the framing of doors and windows in a home or apartment complex. It might be challenging for you to cover legal defense costs, even if you can prove that you did not make the errors. However, if the errors are proven to be your responsibility, this insurance can help reduce the financial burden of paying the settlement to your former client.
Who Needs Errors and Omissions Insurance?
The truth is that if you have a service business where someone could claim that you were negligent or that the work completed was not adequate based on what was paid for or requested.
The challenge for these service-oriented businesses, especially contractors, is that having funds tied up in legal defense can make it more challenging for your business to continue to cash flow from month to month. It could also become a barrier to your ability to take on a more significant project that could represent your company’s additional growth.
Is It Legally Required?
Depending on your state, this type of insurance is not necessarily required as part of your contractor’s insurance. However, having E&O insurance might be required by professional regulatory or licensing boards in your state. California requires a variety of contractor’s insurance, particularly workers’ compensation for any contractor working in the state.
That being said, it is worth considering it as a critical and necessary part of the insurance that is meant to protect your construction company. Since you provide a service with a high probability of clients claiming errors or negligence, you should definitely consider adding this insurance to the mix. It can be the gap coverage necessary to protect your business, especially since this is one area not typically handled by traditional contractor’s liability insurance.
Now the question is, how much E&O insurance does your contracting business need? Our team can walk you through the process of determining the amount necessary by looking at your current projects and your future work schedule to figure out the right amount of coverage required and make sure that you have that coverage in your insurance portfolio.
Along the way, our team can also help you to review your current levels of coverage in all the aspects of the contractor’s insurance for your company. If there are areas where you need to increase your coverage, we can help you find the right policy to fit your coverage needs and your budget. Contact us today to learn more about the options available.
Top Contractors Insurance Services is a full-service contractor insurance agency handling worker’s compensation, general liability, construction bonds, and auto quotes.