Does My Business Insurance Cover Breach of Contract?

Businesses must comply with their state laws on contracts and insurance. Breach of contract can damage a company’s reputation while the company faces heavy fines and other court rulings. That’s why it’s common and wise for firms to get commercial insurance covering general liabilities. This article discusses whether your standard business insurance covers breach of contract or not.

What’s a breach of contract, and how does it occur?

A breach of contract occurs when any party in a contractual business agreement fails to fulfill their responsibilities stated in the contract. A contractor can be sued for various reasons, such as missing a deadline or doing work improperly. Simply not meeting a client’s reasonable expectations can be grounds for a contract dispute.

The two most common types of contract disputes are immaterial and material breaches. While an immaterial breach reflects a minor error that doesn’t cause measurable harm, a material breach is a full breach of contract. In other words, it fails to comply with the contract terms, plus it causes financial harm.

What happens if your client sues your business for breach of contract?

If a client sues your business for contract breach, the case can be heard in a local, state, or even federal court. Here are the types of damages that can be awarded to successful plaintiffs:

  • Restitution: Repay what the client paid you
  • Compensatory damages: Pay the client for losses from the breach
  • Specific performance: Follow through on contract terms
  • Punitive damages: In extreme cases, pay extra damages for punishment
  • Court costs and legal fees: Pay the other party’s legal expenses

Which types of businesses are typically at risk for a breach of contract lawsuit?

Parties that sign a written business contract are bound by the agreement. Businesses are often accused of negligence in breach cases. Any business that provides a service, such as consulting, faces litigation risks over breach of contract.

Which type of insurance plan could protect you from breach of contract lawsuits?

A material breach can lead to expensive attorney fees and court costs. The solution is the Errors and Omissions (E&O) commercial insurance coverage, which protects business owners from dipping into their personal resources to pay for litigation. Here are some of the mistakes that an Errors & Omissions (E&O) policy covers:

  • Failure to deliver services on time
  • Errors and oversights
  • Incomplete work
  • Budget forecast inaccuracy
  • Accusations of negligence

How do I avoid accusations and lawsuits of breach of contract?

You can reduce the chances of a contract breach by drafting a detailed agreement that documents all relevant elements related to the service. The contractor should avoid overpromising services and communicate clearly with the client. Your business should focus on its strengths you can deliver with certainty.

The best way for a business to avoid financial devastation from lawsuits is to get commercial insurance that provides liability coverage. Call our insurance professionals at J. Archer Insurance Group to determine the type of policy that works best for your enterprise. Our knowledgeable and experienced team will answer your questions and guide you through the process. We try to provide the best possible coverage at the lowest possible rates. Contact us today to get started!

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