Manufacturers Errors and Omissions Risk Management
Manufacturers are increasingly outsourcing component work as a way to reduce expenses and bring products to market more quickly This trend creates both opportunities and new areas of risk for component and contact manufacturers poised to meet this increased demand for their products.
Several factors are fueling growth in the multi billion global device industry These a more productive third world population, advances in technology the rise in better working conditions and increased public and private spending on new equipment.
Increasingly these manufacturers are outsourcing component work to reduce costs and streamline their supply chains. The global equipment outsourcing market is expected to grow to $140.1 billion by 2016, according to a 2010 Global Data report.
For component and contact manufacturers, this demand creates new areas of risk. Traditional products liability policies provide coverage for bodily injury or property damage. However, today manufacturers also face product related risk beyond the scope of their products liability coverage, such as professional liability exposure for breach of warranty or defect in design and manufacturing if a component fails to perform as expected.
Liability for economic losses due to manufacturing error can be a significant exposure, yet many companies do not realize this exposure is not covered by a typical products liability policy. A manufacturing company may face this type of claim if its defective component is alleged to have caused a financial loss to an original equipment manufacturer that incorporated the component into its product.
For example, a component manufacturer may supply pumps to an equipment manufacturer's that installs the pumps and ships machines to the end user across the country. If the equipment manufacturer later discovers that the equipment is not functioning properly due to faulty pumps, he may file a claim against the component manufacturer. Damages may include reimbursement of costs related to retrieving and replacing the faulty pumps and returning the equipment to the end user.
The process could take months, which could result in significant lost revenue to the manufacturer and to the end user.
Most manufacturing contracts require the outsourced product to comply with the original equipment manufacturer specifications, and even if the contract disclaims indirect or consequential damages, the component manufacturer may still be liable for economic losses associated with its defective manufacturing.
Manufacturing errors and omissions coverage is designed to respond to these types of losses, yet few component manufacturers purchase it unless a contract requires it.
As the outsourcing trend continues in the medical devices industry, experienced agents and underwriters play a critical role in helping contract and component manufacturers understand the various risks they face and recommend comprehensive insurance programs that help minimize potential coverage gaps.
If you have questions or concerns about manufacturing risk, please let me know.
Contractors Professional Liability
Professional liabilities associated with contracting operations can be a significant exposure for
construction firms. The design/build delivery method and construction management services are just
two factors that increase a contractor’s professional liability. General contractors (GC) and
specialty contractors’ continued success in the construction industry requires recognition of their
professional exposures and implementing risk m nagement
procedures to protect themselves from potential catastrophic financial loss.
Liability exists even if all design is subcontracted and the design firm purchases professional liability insurance. Subcontracting even small portions of a project’s design, such as mechanical, electrical, and plumbing results in vicarious liability for the GC/CM. Professional liability exists when providing constructability reviews, value engineering and altering designs.
Construction Management (CM)
Advertising or accepting responsibilities as a specialist in the management of t h e c o n s t r u c t i o n p r o c e s s p u t s a f i rm i n t o a consulting role. This increases professional liability.
Proposing a change that results in construction defects, additional costs and/or failure to discover design defects or constructability concerns exposes you to liabilities more closely associated with a design professional.
Hiring design professionals increases liability as does having responsibility for processing and approving subcontractor payments. Interference with a subcontractor’s work can create liabilities, as can the hiring of “specialty contractors” (e.g. environmental contractors) to address unanticipated issues affecting the project schedule.
Authorizing change orders that increase the project budget increases liability. Liability decreases when change orders are justifiable.
As a CM, project scheduling is viewed as a professional service because the company is being retained and held responsible as an e x p e r t i n t he c o n s t r u c t i o n p r o c e s s . Liability increases if project completion date is critical (i.e. schools)
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