What happens when a CGL policy isn’t enough?
Consider this scenario:
As a manufacturer of metal widgets, it’s important to ensure that you provide a quality product to your customer. After all, the widgets you produce are integral components of your customer’s product. You’ve delivered your product on time, for the agreed-upon price, and in the correct quantity.
Then the unthinkable happens—your customer contacts you to let you know their product is malfunctioning because the widget you manufactured is faulty and has not been produced according to the specifications laid out in the contract. Shipments of their product have been halted leading to missed delivery deadlines. Making matters worse, the widget cannot be quickly reproduced which leads to your client losing their contract and suffering significant financial losses.
The client decides to sue you for their lost revenues. That’s okay since you have a Commercial General Liability policy (CGL) that will pay for your defence and cover the lost money for the third party, right? Wrong! The CGL responds to damages the insured is legally obligated to pay a third party if their product causes bodily injury or property damage.
Since the widget did not cause property damage or bodily injury, CGL coverage is not triggered. In addition, the above-mentioned situation falls within the scope of the exclusion for “Damage to Impaired Property, or Property not Physically Injured.” There is also nothing wrong with your customer’s product as it wouldn’t have malfunctioned had the widget been produced to specification. Lastly, CGL policies are not intended to cover financial losses.
Which coverage would have helped?
Unica’s Manufacturers Errors and Omissions (E&O) product fills this gap in protection and provides coverage for defence costs as well as any financial loss that the insured would be responsible to pay due to the insured’s faulty production of the widget. Manufacturers E&O would also cover the insured’s negligence in installing their widget as well as the widget’s failure to perform.
A Manufacturers E&O policy is a vital tool in the protection of a manufacturer’s business and is an essential product for their insurance program. Without this coverage, the manufacturer is exposed to potential liabilities even with a CGL Policy in place.
