The revival of manufacturing in the United States is gaining attention, thanks to government support and efforts to bring jobs back home. This renewed focus on domestic production is prompting companies to rethink how they manage risks, especially in light of new challenges.
One area that is becoming increasingly important is errors and omissions (E&O) insurance. As companies face more complex technology and regulatory requirements, the potential for mistakes is rising. Zach Harsch, an assistant vice president at Amwins Brokerage, noted that longer supply chains and detailed manufacturing processes are increasing the chances of errors. He pointed out that as regulations change, manufacturers are dealing with more complicated risks.
E&O insurance is stepping into the spotlight as economic factors shift for U.S. manufacturers. Recent tariff increases aim to protect local industries by taxing imported goods, which may encourage businesses to move operations back to the U.S. While some industries, like steel and aluminum, are quickly adjusting, others are still figuring out how to cope. This transition can lead to operational issues that might result in claims related to errors or compliance failures.
Harsch explained that manufacturers could face various liabilities, from product design flaws to failures in service delivery. E&O coverage acts as a safety net, protecting businesses from financial losses tied to mistakes in products or services. It can cover legal fees and settlements resulting from manufacturing errors or negligence.
Changes in tariffs can add to these risks. As companies switch suppliers or adjust production locations to comply with new trade rules, they may inadvertently misclassify goods under updated tariff codes. This can lead to penalties and legal trouble. E&O policies may cover these trade compliance errors, which are not usually addressed by standard liability insurance.
Harsch highlighted several areas where E&O coverage can be beneficial, including product design, assembly, distribution, and even marketing. While many manufacturers carry general liability insurance, these policies do not cover financial losses from defective products. He emphasized that general and product liability primarily address bodily injuries and property damage, leaving gaps for financial losses due to manufacturing errors.
This distinction is crucial for businesses facing claims without physical damage. If a product is faulty or a service is not delivered as promised, E&O insurance can cover the financial fallout, even if there are no injuries involved. It can also protect against issues like failure to comply with regulations or providing incorrect instructions that lead to business interruptions.
As global supply chains face disruptions, particularly due to tariffs, companies that rely on international components may encounter delays. In these situations, clients might seek compensation for losses, and E&O coverage could help address claims related to unmet obligations or delivery timelines. The insurance also covers less obvious risks, such as compliance with the Americans with Disabilities Act and disputes over intellectual property.
With rising trade tensions, the risk of litigation is increasing. Disputes over pricing, delivery, or intellectual property could become more frequent. E&O insurance can provide a buffer against these economic disputes, especially as many contracts require manufacturers to carry this type of coverage.
Harsch noted that regulations often mandate E&O insurance, particularly in sectors where manufacturers offer professional services or technology integration. This coverage can provide financial security in an increasingly automated production environment.
As manufacturers adopt new technologies like artificial intelligence, the risk of errors related to these systems grows. Harsch stressed the importance of having a robust E&O policy that includes coverage for cyber liability and technology-related mistakes.
In summary, as U.S. manufacturing experiences a resurgence, the role of E&O insurance is becoming more significant. Companies are realizing the need to protect themselves from financial risks associated with errors and omissions, especially in a rapidly changing economic landscape.