No matter your business activities or how many procedures you have in place for your staff to follow, the very fact that businesses are run by human beings means there are always going to be a margin for error. Granted, with better risk management and stringent management processes comes a much smaller margin but there isn’t a single business that is completely risk free of making a good old fashion blunder.
What sort of errors am I referring to? Here’s some examples we’ve seen over the years:
- Mechanical workshop: Fitting the wrong part to a vehicle during a routine service
- Glazier: Replacing a pane of glass with glass that wasn’t what the customer requested
- Truck Body Builder: Building a truck body whose dimensions didn’t pass the roadworthy test when the customer went to register the vehicle
- Signwriter: Fitted signage to a customer’s car that had a spelling error
So what happens here you ask? Well the answer can be very complicated but in most circumstances is relatively straight forward from a liability perspective.
If you have made an error that needs you to go back and fix it up, the cost of doing so is excluded under the “Faulty Workmanship” exclusion in a Public and Products Liability policy. Here’s a typical Faulty Workmanship clause from a leading insurer:
We do not cover any liability for the cost of performing, completing, correcting or improving any work undertaken by You.”
The intention is simple in that the insurer doesn’t want to be taking the risk of needing to pay to correct or undertake any work that could have been avoided in the first place. Seems reasonable when you understand the principals of a liability policy is to cover injury or damage to third parties, but when you add another layer to the situation where that mistake causes injury or damage your policy intends to respond.
To make it more complex again there are examples where there was no injury or damage to trigger your policy but you’ve caused a financial loss to the customer because of the mistake. Viola – an “Errors and Omissions” extension! We’ve covered E&O in another article and the scope and effectiveness of an E&O clause depends entirely on the insurer selected but broadly speaking they help where you have made an error and caused a financial loss to a third party without injuring or damaging anything.
In conclusion think:
An error that needs fixing? Won’t be covered by your liability policy.
An error that has caused resulting injury or damage? Should be covered by your liability policy.
An error that caused a financial loss without injury or damage? E&O cover should be able to help.
This can be complex and depending on your industry black and white boundaries get somewhat blurred requiring a professional broker to help advocate for you in a claim situation. It is cover that we’ve become experts at navigating and would love to help you understand better. Get in touch, we’d love to help you.
Director | McLardy McShane South East