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September 29, 2010  

Technology Errors and Omissions Liability Insurance

Technology Errors and Omissions insurance, also referred to as professional liability, protects IT based businesses against claims for programming errors, software performance, or the failure to perform the work as promised in a contract.

More formally explained, it protects technology companies if they are faced with the two most common forms of liability risks:

  1. claims for “malpractice” in which companies are sued for failing to maintain accepted standards of care as a technology professional or company, and
  2. breach of contract claims for failing to perform contracted services in a timely manner and within the contractual terms.

To paint a picture of an actual claim scenario, consider this:

Your design team spent numerous hours creating a website they felt met the client’s needs perfectly. But weeks after the site launched, you learn that a member of your team accidentally deleted critical content on the site. This created a liability exposure for your client who sues you for restitution. Just when you think things can’t get worse, you learn that your general liability insurance will not cover your employee’s error.

How will you pay for damages to your client – and the legal expenses related to the lawsuit? Either of the types of errors and omissions allegations outlined above can tie up company funds, personnel and focus for years; and IT based businesses are especially prone to high dollar lawsuits.

Don’t be fooled, however. Technology Errors and Omissions insurance coverage is NOT provided by a commercial general liability policy. IT consultants and companies who have general liability without professional liability (Errors or Omissions) coverage are taking a serious risk. It’s the same concept as a doctor practicing medicine without malpractice insurance.

All Types of IT Firms Need Errors and Omissions Insurance:

From massive software giants to individual consultants writing programs or servicing computers out of their homes, all are equally at risk for E&O liability suits. Here are some more examples of the types of businesses that need this coverage:

Software and computer-related services

  • Prepackaged or custom software developers
  • Website designers
  • Computer consultants
  • Systems integrators

Electronics manufacturing

  • Electronic components
  • Consumer electronics
  • Computers
  • Communications equipment

Telecommunications & connectivity services

  • Long distance telecommunications carriers
  • Internet/Application Service Providers
  • Web site hosting

Technology Errors & Omissions insurance is a technical and specialized line of insurance. If your business is in need of this coverage, be certain the insurance agent you’re reaching out to is knowledgeable on the subject and understands ins and outs of these policy forms!

–JK

July 13, 2010  

Do I need Errors and Omissions Insurance?

If you are in the business of providing a service to your clients for a fee, you have an Errors and Omissions (E&O) exposure and should consider Errors and Omissions Liability Insurance.

What is E&O insurance? 

E&O insurance, also referred to as professional liability insurance, covers businesses or individuals in the event that a client holds such company or individual responsible for a service that was provided, or failed to be provided, and did not have the expected or promised results. In very basic terms, it protects you when you perform a service for your client and they claim it was done incorrectly and caused them harm. Most E&O policies cover defense costs and any resulting settlements and judgments against you or your company, up to the coverage limits on your policy. Your Commercial General Liability policy does NOT provide this coverage.

Who needs E&O Insurance?

Any company that is in the business of providing a service to clients for a fee faces an E&O exposure. Some of the more common professions which need E&O insurance are real estate agents, architects, engineers, doctors, lawyers, IT consultants, and accountants to name a few. The list of professions is a lot more extensive. If you are in doubt as to whether you might need it, consult with your insurance agent.  

Why do I need it? 

For one, E&O is excluded on general liability insurance policies. More importantly, mistakes are inevitable for any business or individual. Nobody’s perfect.

Here are some claim scenarios courtesy of Philadelphia Insurance Company. 

When should I buy E&O insurance?

The best time to buy errors and omissions insurance is before you begin practicing. If you know you have an exposure, make E&O insurance part of your insurance program before conducting business. 

I will be covering more aspects of E&O insurance in future blogs and how it differentiates from general liability insurance. There is no such thing as “one size fits all” in an E&O policy. These policies are customized and tailored to each and every business. It is very important that your insurance agent understands E&O coverage and the marketplace. Neither you nor your business can afford to get it wrong.

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