Over the last 24 months we have seen a greater demand for manufacturers’ E&O. The main driving force for the request is due to primary (end-product) manufacturers requiring their secondary and tertiary component manufacturers to carry this line of coverage via contract.

The main aim of the policy is to cover any financial loss suffered by a third party arising out of the failure of a product to perform its intended function. This exposure is explicitly excluded by CGL carriers and so this policy looks to fill the gap. Bodily Injury and property damage is excluded from our form (The CGL policy will respond).

Manufacturers' E&O in action

Below is an example of how coverage can come into play with respect to a claims scenario:

Our insured manufactures faulty components; they are unaware of this fact and sell their components to a client. The client incorporates the component into their end product which is then shipped and sold. Once customers discover the product is faulty, the client recalls the products, incurring a financial loss. The client discovers our insured’s component is the cause of their product not working. The client may have recall insurance in place but in theory the recall carrier could try to subrogate the claim against the cause (our insured). Our policy would respond in this instance.

The cost of recall may not be the only financial loss the client suffers – the client could try to recoup further consequential financial loss. If the client discovers our insured’s component is faulty prior to incorporating it into their product, it could cause a delay to the client’s production and a loss in orders and profits. This could equate to a consequential financial loss.

Who we place cover for

There is broad appetite in the market and all risks are considered on a case by case basis but the area in which we have had most success would be widgets/components specifically in the below industries:

• Industrial component parts
• Fabricated metal products
• Industrial valves and fittings
• Aerospace/transportation equipment
• Plastic and rubber
• Packaging
• Automotive component parts

Best placed to help

At Miller we have access to three markets in London, with exclusive access and wordings with some of these. Miller’s E&O team are able to turn all new business around within 48 hours and any decline will always be accompanied with explanation as to why the cover cannot be offered.

We also have an exclusive product that packages manufacturers’ E&O with product recall cover, ensuring no gaps in coverage and the added benefit of claims being handled centrally for both lines. This avoids denials where the claim falls in the middle ground between cover and difficult subrogation scenarios between recall and E&O carriers.