What Is Technology Errors & Omissions Insurance?

Technology errors & omissions 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. Technology errors & omissions 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.

Who Is Tech E&O Insurance For?

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

Technology 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.

Why Do You Need a Tech E&O 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 need to purchase this coverage because it was created to cover these less tangible and untraditional risks that modern tech companies often face.

2021 Q1 Benchmark Report Is Now Available!

Analyzing the Risks and Costs for Founders

This report, derived from over 2,000 aggregated and anonymized Embroker transactions, is broken down by different startup funding and revenue stages. All the data represents actual premiums paid and policy options chosen at the time of purchase.

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What Does Tech E&O Cover?

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

That’s why having insurance to protect your company from such possible financial losses is imperative. Startups and other tech companies that are just getting started need to properly invest and use every penny they have and be conservative with their spending. In such a situation, it’s easy to understand how devastating a liability claim can be if the company does not have insurance.

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

Tech Errors & Omissions insurance will cover risks that are related to the financial loss of a third party arising from your company’s product or service’s failure to perform as it was expected or meant to perform. 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.

Contractual Liability

If your company signed a contract promising a feature, service, or product to be completed and delivered by a certain date and your company was unable to do so, leading the financial losses suffered by your client as a result, you could be sued for contractual liability. If the 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 create can easily cause problems for a large number of customers and users if a mistake was 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 E&O Insurance for Tech Companies 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 coverage:

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.

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