Technology Errors & Omissions Insurance

What Is Tech E&O Insurance?

Tech E&O insurance is a specialized insurance product that was created to protect the specific professional liability risks that people operating in the technology industry commonly face.

Errors & omissions insurance is often called professional liability insurance. It’s also commonly referred to as malpractice insurance, especially when it is protecting service professionals such as accountants, architects, lawyers, and consultants.

A professional liability insurance policy will help cover the legal costs that can amass if a client decides that they want to sue you because they believe that an error or miscalculation you made while performing services for them has caused them to suffer a loss of some kind, usually financial.

Many industries with very specific risks have insurance products that are tailored to a specific profession; legal professional liability insurance and medical malpractice insurance, for example.

The same goes for the technology industry. Tech E&O insurance policies are designed to protect from risks that are commonly associated with tech companies, which is currently one of the fastest-growing industries in the world economy.

For example, if your technology company is hired to get a company’s e-commerce store up and running by the holiday season and you fail to do so, or the store isn’t functional, your company can be sued for damages incurred by your client which can be directly traced back to the errors or negligence of your company.

If your technology product or service fails or it doesn’t work the way it was supposed to, your clients and customers can sue you for damages. When this occurs, a tech E&O insurance policy will pay for legal expenses and indemnity payments related to the claim.

A typical tech E&O insurance policy covers legal fees, court costs, court fees, settlement payments, and legal judgments.

Who Is Tech E&O Insurance For?

Risk management experts who specialize in providing the right coverage for technology companies commonly cite tech E&O insurance as one of the most important policies and an essential piece of the puzzle when putting together a good tech startup insurance package.

Tech E&O insurance was created to provide coverage for companies that are working in cutting-edge fields and offering services and products that can impact third parties in a way that requires a new, modern approach to assessing liability and providing coverage for risks that are less tangible and traditional.

Some examples industries and business that tech E&O insurance is most beneficial for:

• Software developers, including mobile and web developers
• IT contractors
• Businesses that manufacture electronic hardware
• Technology startups
• Ecommerce businesses
• SaaS providers
• And many more.

That’s why it can be said that any company that offers any type of technology service or product should purchase this coverage.

Whether you are building websites for clients, providing cloud storage for third parties, creating and selling software as a service (SaaS) products, or even offering consulting services to technology companies, it would be wise to purchase tech errors & omissions coverage for your company.

Why Do You Need a Tech E&O Insurance Policy?

If you are running a tech company, especially a startup that might be looking to attract investors, tech E&O should be one of your primary concerns when it comes to putting together the right insurance package.

Along with cyber liability insurance, which is another vital coverage that is often bundled with tech errors & omissions (that’s how our Embroker startup package offers these coverages), professional liability is a must for tech companies.

Any company that is working in a cutting-edge industry and offers services and products that are pushing the envelope and exploring new territory needs to purchase this coverage because it was created to cover these less tangible and untraditional risks that modern tech companies often face.

Tech Errors & Omissions vs. Cyber Liability Insurance

Businesses often confuse tech errors & omissions and cyber liability insurance because they both cover cyber risks. However, the coverage of each tackles problems associated with cyber risks from different perspectives.

Every technology company should purchase both policies because if your company doesn’t have both types of coverage, claims can get very complicated. That’s why most will purchase a tech E&O policy that includes cyber coverage.

Cyberattacks are incredibly common today and are the top risk that technology companies face. If a cyberattack does occur that results in third-party information being comprised, you will more than likely be sued.

If the cyberattack’s success was related to your company’s negligence or an error that your company made, then a technology E&O policy would cover all associated costs and losses.

However, it is determined that the cyberattack and ensuing data breach was not your company’s fault, the associated costs would then be covered by your cyber liability insurance policy.

A cyber liability policy will cover costs related to investigating the cyberattack, notifying affected third parties, possible regulatory fines, third-party credit monitoring, PR efforts if your company suffered reputational damage because of the breach, and even ransom payments in the case of a ransomware attack.

That’s why it is crucial for tech companies and software development companies to have both, in order to avoid potentially costly gaps in coverage.

What Does Tech E&O Insurance Cover?

Early-stage startups and other young tech companies that don’t really have a lot of revenue coming in yet may not be able to survive a costly financial claim or court case. Even startups that have received venture funding usually aren’t profitable yet.

That’s why having insurance to protect your company from possible financial losses is so important.

Startups and other tech companies that are just getting started need to make every penny count. That means investing wisely and spending more conservatively — and a liability claim can be devastating if the company doesn’t have insurance.

The company doesn’t even have to lose the case to lose a lot of money. Court proceedings and trials related to tech companies are often complex and can take a long time to resolve, during which time legal fees and defense costs can pile up.

Tech E&O/Cyber insurance provides coverage for claims alleging financial injury as a result of the failure of your service or software to perform as intended.

Cyber insurance provides coverage for both the first-party expenses arising out of a data breach and any ensuing liability claims brought against the company as a result of that data breach.

Here are a few examples of the types of liability claims that are often filed against tech startups. For more, read our full article on common Tech E&O claims.

Cyber Liability

In today’s world, nearly every business is at risk of a cyber attack. Even if you have the best security measures in place, there’s always a chance that something could go wrong, including data breaches, cyber theft, and cyber vandalism.

That’s why it’s so important to have adequate cyber insurance in place. Without it, you could be left footing the bill for tens of thousands of dollars — or more.

Our Tech E&O policy form includes the following cyber liability enhancements that other leading carriers do not offer:

• Express coverage for breach of contract claims

• Software copyright code infringement

• Return of fees as damages

• Contingent bodily injury and property damage coverage

Contractual Liability

If your company has signed a contract promising a feature, service, or product to be completed and delivered by a certain date and your company is unable to do so, you could be sued for contractual liability.

And if your client can easily prove that their business suffered financial losses as a result of your inability to make good on your contractual obligation, your company will have a hard time winning the claim.

Professional Negligence

Products that tech companies develop can easily cause problems for a large number of customers and users if a mistake gets released into production.

For example, if your tech company creates software that damages your client’s computer in some way when it’s installed, a claim can be filed against your tech company for professional negligence.

What’s Not Covered?

As is the case with most types of insurance, there are certain exclusions that a tech E&O policy usually will not cover.

Most notably, professional liability will not cover claims that are the direct result of you or your employees engaging in criminal activity or illegal acts.

Financial insolvency is also not covered by a tech E&O policy.

Also, most professional liability policies will not cover copyright infringement or libel claims either. If you need this coverage, you should add intellectual property insurance to your company’s tech E&O coverage.

What Does Tech E&O Insurance Cost?

Just like any other business insurance product that your company needs to purchase, several factors will determine the premium your company will have to pay for Tech E&O insurance:

Revenue

The more revenue a company has, the more it’s exposed to claims and demands, meaning higher premiums. For early-stage startups whose revenue is hard to project, insurers will often consider the physical business offices or payroll.

Location

Companies located in metropolitan hubs (New York, Los Angeles, San Francisco, etc.) will have to pay more than those located in less populated areas.

Claims history

If your business has a history of E&O claims, your insurer will expect you to pay more for coverage.

Limits

Quite simply – the higher the limit, the higher the premium will be. Given how expensive and damaging technology E&O claims can be, it’s better to get a higher limit than might be needed than to be left without coverage mid an expensive lawsuit.

Amount of Deductible

How much the company will have to pay from its own funds before the policy payout kicks in. A high deductible means lower premiums. As policy limits get higher, insurers will typically demand that be followed with a higher deductible.

However, no insurer will ask for an unreasonably high deductible. They’ll limit the deductible to what they believe the insured company can pay – typically based on last year’s revenue figures.