I’m working on an insurance policy renewal for a Technology, Computer & IT Services based small business. This is for their Professional Liability / Errors & Omissions insurance coverage.
The insured wants to know the advantages of keeping this E&O insurance policy and the coverage differences compared to General Liability insurance.
Here’s a nice two-minute explanation from The Hartford to address this exact question:
If you ask me, all Technology, Computer and/or IT Services based businesses should carry both professional liability (E&O) and General Liability to protect their risk exposures, without question.
Your clients can sue you for a wrongful act in providing professional services, which can be the result of an act, error or omission; very often, it is not the result of a mistake, but rather displeasure with the outcome, and even frivolous lawsuits will incur defense costs
The best part is that both coverages can often be packaged into a single policy together.
Travelers Insurance Company has joined the ranks of other major carriers such as The Hartford in writing coverage for technology companies. Travelers Global Technology President Ronda Wescott and Chief Underwriting Officer Mike Thoma provide their perspective:
If you have a Life Science or Software and Information Technology Company and would like a review of your current insurance portfolio, feel free to contact me anytime. I can help market your coverage’s with all the major carriers specializing in this sector.
Some of the most common insurance coverage’s important to the Life Science or Software and Information Technology industry are:
- Commercial General Liability
- Professional Liability (Errors & Omissions)
- Workers’ Compensation
- Commercial Automobile
- Commercial Umbrella/ Excess Liability
- Cyber Liability & First Party Data Privacy Expense
- Directors and Officers Liability (D&O)
- Employment Practices Liability
- Fiduciary Liability
- Kidnap and Ransom
- Group Medical Insurance
- Group Life and Disability
Every business has unique risks that can seriously harm an organization’s operations if not properly protected against. As a business utilizing technology to produce and deliver products and/or services, it’s important to recognize and take precautions against risks that your Commercial General Liability insurance coverage does not include.
Technology Professional Liability insurance coverage, also referred to as Tech Errors and Omissions (E&O) insurance, is essential for companies using technology because it addresses a lack of protection in Commercial General Liability policies, which typically do not cover claims of third-party financial harm.
Who needs Tech E&O Coverage?
Not only technology industry businesses have technology-related risks. Most companies today utilize technology in some part of providing a service or product and need to take the necessary precautions. To ensure your company is covering all bases, a full risk management assessment is needed.
What does Tech E&O cover?
Tech E&O insurance manages risks, resulting from providing a product or service to a third party, that are not covered by a Commercial General Liability insurance policy. Specifically, Tech E&O insurance protects your business in the event that a third party suffers a financial loss due to your product or service not performing as it was intended or expected, including the event of an error or omission committed by your company. These insurance policies also cover defense costs in the event of litigation.
Tech E&O coverage would apply in the following situations:
- A mistake was made and an error in the code of a website or program your company produced isn’t found before it is implemented. A third party depends on this product or service to operate its business and its operations are stalled due to the error, causing them a financial loss.
- A part your company produces is installed in a piece of equipment. After a short amount of time, the component simply stops working, causing the equipment to fail to work, but otherwise not damaging anything or hurting anyone. The third party that relies on this equipment for its business has to stop operations and suffers a financial loss.
- An employee of your company recommends that a client make an adjustment to its network. The client follows the advice and its network crashes as a result, causing a time and financial loss for its operations.
In all of these cases, Commercial General Liability insurance coverage would not cover a claim or any costs of litigation because of the presence of an error and the lack of resulting physical damage to the third party’s property.
Contact me anytime to learn more about protecting yourself with a comprehensive professional liability insurance policy.
Working as a broker, I work with a lot of different carriers on behalf of my clients to place their business insurance. One of the major carriers that I work with is The Hartford, an AM Best A (Excellent) XV ($2B or Greater Financial Size) rated carrier. The Hartford’s a great carrier to work with if you have a small business.
Interested in what they have to offer? Contact me anytime to discuss. Maybe we can find you something competitive backed by great coverage.
Here’s a new video featuring their focus on small businesses insurance.
Two different methods are used by insurance companies to determine coverage when writing liability insurance:
- “claims made” policies
- “occurrence” policy
Most often, commercial general liability insurance is written on an occurrence basis while employee benefits liability, professional liability and employment practices liability insurance will be written on a claims-made coverage form.
On an “occurrence” policy, the coverage trigger is the date of the event or accident giving rise to a claim. The policy in force on the date of the event causing the loss must respond with both defense and/or indemnity. Even if a claim arises years after a policy has expired, the date you receive notice of the claim doesn’t matter. Occurrence policies do not provide coverage for prior acts. They do remain available for claims that arise years after a policy term has expired, however. If an accident or event occurs during the term of an occurrence policy, that policy must respond to any future claim.
As for claims-made policies, coverage is triggered by the date you first became aware and notify the insurance carrier of a claim or potential claim. The carrier’s policy in force on the date you became aware and give notice is the insurer who must defend and settle the claim. A claims-made policy may reach back in time and provide coverage for claims made today from negligent acts, errors or omissions that occurred years before the policy was purchased.
The following conditions must be met before prior acts coverage is granted:
- You must receive notification of a claim or potential claim situation during the policy period.
- The claim or potential claim situation must be reported to the insurer during the policy period.
- The negligent act, error or omission giving rise to the claim must occur after a “prior acts” or “retroactive” date listed in the policy declarations.
- You or your firm had no prior knowledge of a mistake, error or controversy on the date coverage was purchased.
The “prior acts” or “retroactive” date is a crucial piece in a claims-made policy. Your policy declarations page will clearly identify a “retroactive” date that determines how far back prior acts coverage extends. Claims resulting from services rendered before the “retroactive” date are not covered.
Think before you decide to cancel or non-renew your claims made liability policy
If you decide to cancel or not renew your claims-made policy, you must consider purchasing an Extended Reporting Period or “TAIL” coverage to insure you for incidents which occurred while the policy was in force but was reported after the policy was cancelled. For example:
If you purchased a claims-made policy with an effective date of January 1, 2010 and chose to cancel or let the policy lapse without TAIL coverage or an Extended Reporting Period — any claims made after December 31, 2010 would not be covered. If you were sued in 2012 for a wrongful act committed in 2010 (during which time you were covered), the insurance company would not be responsible for paying any claim. An Extended Reporting Period Endorsement (TAIL) “extends your right to report a claim” to your prior insurance company after the policy has ended, canceled or lapsed.
As I often note, make sure your insurance agent is knowledgeable and experienced with claims made insurance forms. It gets complicated. Also, note that I am writing this from an insurance perspective; only to be used for informational purposes! My intent isn’t to provide legal advice here. That’s what lawyers are for…
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:
- claims for “malpractice” in which companies are sued for failing to maintain accepted standards of care as a technology professional or company, and
- breach of contract claims for failing to perform contracted services in a timely manner and within the contractual terms.
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
- Electronic components
- Consumer electronics
- 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!