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New E&O Programs Fill Coverage Gap for Small Contractors.

Byline: Todd Cincotta

Plumbers, electricians and other small contractors are being squeezed by changing expectations and a difficult economy. Customers are more demanding and quick to claim negligence when they aren't satisfied with the results of the work. For plumbers, painters, finish carpenters, heating contractors and other artisan-type contractors, a simple complaint can easily escalate into a financial dispute they can't afford.

Read related: "Project Losses a Major Consideration in Contractor Coverage."

Sometimes a misunderstanding or a lack of communication can lead to a problem. When a small contractor makes a mistake or a misjudgment that results in a loss, he often must spend the time and his own money to fix the work. A typical errors and omissions claim can cost $5,000 or more, a significant cost for an uninsured small contractor. With more than 2 million artisan contractors in the U.S., it happens every day on jobs like these.

* Carpet installer: A flooring contractor picks up the wrong carpet at the dealer and mistakenly installs it in a customer's home. The installer has to remove the incorrect carpet and replace it with the correct product. Total contractor loss: $3,000.

* HVAC contractor: When installing a new cooling unit on the roof of a commercial building, a heating, ventilation and cooling contractor fails to properly complete the foundation support. The unit breaks through the roof, destroys the equipment and causes significant damage to the building and personal property. Although the property damage is covered under the contractor's general liability coverage, the contractor's uncovered errors and omissions loss is $25,000.

* Fence erection: A fencing contractor misreads the site plan while installing a fence. As a result, the fence is installed significantly over the property line. The fence has to be removed and reinstalled. Total contractor loss: $35,000.

* Lawn care service: A lawn care specialist applies the wrong chemical to the lawns at a corporate office park. Subsequently, all the turf dies, needs to be removed, and replaced with new sod. Total contractor loss: $17,000.

* Appliance installer: An appliance installer incorrectly wires a new 220-volt receptacle, which causes a new commercial-quality oven to malfunction. The oven is damaged and a new unit has to be installed. Total contractor loss: $6,750.

In a competitive market and difficult economy, small contractors are pressured to do more jobs within narrower margins, exposing them to costly errors in their work. Yet most general liability forms exclude coverage for "your work," or "your product," or "impaired property," when applied to wrongful acts related to contractor services.

This means that although a general liability policy can cover property and other exposures, many small artisan-type contractors have no insurance protection for E&O claims. It's a coverage gap that can lead to thousands of dollars of uncovered losses at any time, an unanticipated expense that can threaten the survival of a business.

Contractors E&O insurance can pay these losses, but the coverage has not been widely available or affordable to small contractors, or it was limited to only a few classes. Typical E&O coverage is geared to larger businesses, such as general contractors, and priced accordingly, even though small contractors face many of the same risks and liabilities.

Now, E&O insurance is available for small contractors, with more affordable premiums and coverage designed to meet the needs of this growing market. It helps fill the coverage gap in general liability policies and some programs have expanded eligibility to many more classes, including HVAC dealers and distributors, janitorial contractors, locksmiths, septic tank cleaners, masonry contractors, interior tile and stone artisans, and other specialty trades.

To make it easier for small contractors and their agents, for example, Hartford Steam Boiler offers its contractors E&O coverage as an enhancement to the small business policies of other insurance companies that partner with us. Deductibles can vary, from $500 per job to $5,000 per job, and limits may range from $2,500 per job/$10,000 annual aggregate, to $100,000 per job/$100,000 annual aggregate.

Read related: "Never By Accident."

The new E&O coverage was developed in large part because agents and brokers saw the need to better serve their small contractor clients. As the economy recovers, this market will continue to expand as consumers make home improvements and a growing U.S. population increases demand for new apartment, business and housing construction.

An errors and omissions product for small artisan contractors gives agents and brokers an opportunity to fill a coverage gap and provide financial protection and peace of mind for their customers at a price they can afford. It's important coverage that can help small contractors operate with more confidence in today's litigious environment.
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Publication:Property and Casualty 360
Date:May 2, 2012
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