Technology Errors and Omissions Insurance

As a tech professional, you've probably cultivated a healthy fear of client complaints developing into full-fledged lawsuits, and for good reason. Whether it's over a misunderstanding, a data breach, or an incompatibility issue, client complaints can be seriously expensive if they head to court. And that's why technology Errors and Omissions Insurance should be an indispensible part of your risk management plan.

E&O Insurance (i.e., Professional Liability Insurance) can offer coverage when a client accuses you of professional mistakes and seeks monetary damages. The client's reason may be valid, say, if your work causes their servers to crash and they lose valuable business over it. On the other hand, they may misplace their frustration and blame you for technology they don’t quite understand. Either way, E and O Insurance can help pay for legal costs and attorney fees to resolve the claim.

And don’t count on a simple, easy court case, even if you know you’re not to blame. Though your work may be second nature to you, the intricacies of emerging tech aren’t necessarily clear to a judge or jury. A lawsuit involving the nitty-gritty details of your work could take a formidable amount of time and money to win – time and money you’d rather put toward your business.

Let's look at how technology E&O can help your business.

How IT Errors & Omissions Insurance Works

How IT Errors & Omissions Insurance Works

If a client claims you were professionally negligent, provided incomplete work, or made mistakes, your E&O policy can provide funds to deal with these potentially costly allegations.

How costly? Consider the cost of data breaches and cyber attacks, risks that are becoming all too common in today’s business world. According to the NSBA’s 2014 Year-End Economic Report, cyber-attacks cost small businesses an average of $20,752 per attack. In 2013, that number was $8,699.

These attacks may become even more expensive as time goes on, and that affects you. If your client experiences a cyber attack and blames you for making their system vulnerable, you might have to foot the whole bill. If not, you’ll at least have to defend yourself in court, which could easily cost just as much.

Not every tech business has this kind of cash lying around, which is why E&O coverage is so important. When you experience a covered E&O claim, your policy may provide payments for:

  • Attorney fees (even if the claim is baseless). Ignoring a lawsuit won't make it go away, so you will likely need an attorney's help. Whether the case is handled through out-of-court negotiations or through a trial, your E&O policy can provide the funds for legal counsel.
  • Court costs if your case goes to trial. E&O Insurance can help you pay for witness fees, transcript fees, docket fees, and more, which you would otherwise have to pay for out of pocket.
  • Settlements, judgments, and fines. These expenses might include what the plaintiff is awarded – and what you’ll have to cough up based on the outcome of the case.

Not every E&O policy is the same, so make sure you know what coverage yours offers. Some may provide coverage for copyright infringement claims (e.g., if someone claims you stole their software or coding to do a job), but other policies may not.

Get to know your policy’s limits, too. You are responsible for any costs that exceed those limits. If you have any questions about your policy, feel free to contact an Insureon agent.

Know Your E&O: Key Details

Know Your E&O: Key Details

When comparing IT E&O policies, keep the following considerations in mind.

Claims-Made Coverage

Most E&O policies offer claims-made coverage. That means in order to receive your benefits, your policy must be active when an alleged incident occurs AND when a claim is filed over that incident.

Because of these caveats, most policyholders tend to invest in an E&O policy and keep it for the life of their business. After all, a claim may arise years after an incident, depending on the local statutes of limitations.

Occurrence Coverage

Very rarely, you might come across an E&O policy with occurrence coverage. Unlike claims-made coverage, occurrence coverage accounts for any incident that happens during the life of your E&O policy, even if the suit is filed after the policy’s expiration.

Tails and Prior Acts for Coverage Gaps

If you ever switch from one E&O policy to another, you may have a coverage gap. To address this, you might want to purchase “tail” coverage or “prior acts” coverage. Tail coverage allows you to report claims after your policy has been terminated. Prior acts coverage is usually purchased through your new provider and can reach back to address events that have already taken place but haven't been reported.

Coverage Limits and Deductibles

Your policy limits indicate the amount of coverage provided for a covered claim. A per occurrence limit is the amount your policy can cover per incident. The aggregate limit is the total your policy can cover during your policy period. Generally, most Errors and Omissions policies can be purchased in $1 million limit increments.

A deductible is the amount you are responsible for paying out of pocket in the event of a covered claim. Generally, higher premiums come with lower deductibles.

To see an estimate of what E&O Insurance might cost, check out our page "How Much Does Technology Insurance Cost?" and select the work that best describes what your business does.

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