VC Errors & Omissions incl. Cyber

Embroker helps venture capital firms protect themselves from professional and cyber liability threats with customized errors & omissions and cyber insurance.

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What Is It?

Errors & omissions insurance is often called professional liability or professional indemnity insurance. If your venture capital or private equity firm has a claim filed against it related to professional negligence, misrepresentation, mismanagement of funds, and more, an E&O policy that is tailored to the needs of VCs should be able to protect them financially if such lawsuits do arise.

Cyber liability insurance is often coupled with errors & omissions as a complementary coverage that VC firms, who are intrinsically reliant on technology and deal with a lot of sensitive data, commonly need as part of their risk management strategy. It protects VC firms from third-party lawsuits related to data breaches and other cybercrimes, but can also protect from fines handed out by regulatory bodies.

Who Is It For?

E&O coverage is tailored to provide coverage for venture capital firms that want protection from claims alleging wrongful conduct, professional errors, and missteps related to their activities as an investment firm and the professional services that they provide. This E&O coverage was built to provide coverage for directors, officers, and board members of VC firms that purchase interests in other private companies or portfolio companies.

VCs and private equity firms are commonly targeted by hackers and cyber criminals, simply because the industry is associated most with investments of fairly large sums of money. If your VC firm relies on technology heavily and stores the sensitive information of portfolio companies and partners on its servers or anywhere else where hackers might be able to gain access to the information, having cyber liability insurance is also essential.

Why Do You Need It?

Venture capital firms tend to work most with companies in cutting-edge industries that offer services and products that are pushing the envelope and exploring new territory. This leaves both the portfolio companies and the VCs open to a slew of specific risks that modern, forward-thinking companies in often high-risk industries face.

Furthermore, claims that arise in cutting-edge industries are often complex and can cost a fortune to resolve, which is why the vast majority of investment professionals should purchase the proper insurance coverage that protects the assets of their management and the firm in general.

What Does It Cover?

Errors & omissions insurance provides coverage for a variety of errors made while providing professional services to your clients. In typical businesses, this would include issues such as mistakes and oversights made in one’s work, failing to deliver services and goods as was agreed upon, breach of contract, professional negligence, failure to meet deadlines, providing bad advice, and so on.

When we are talking about venture capital firms, professional services often refer to the services performed by directors and other board members who work closely with portfolio companies. VCs and private equity companies often see claims related to corporate governance issues, mismanagement of funds, lack of due diligence, negligence, and even exits from investments can lead to claims.

Cyber liability covers the same risks for venture capital firms that it would for any other business, including privacy issues, data breaches, social engineering attacks, computer fraud, and more. A good cyber policy will cover the costs of notifying any third parties that have been affected by a cyber crime that occurred in your organization. It would also cover the costs of investigating the issue and rectifying it.

If your venture capital firm has claims filed against it by a third-company related to a cyber breach, your policy should also pay these legal costs, including defense costs and possible settlements.

What’s Not Covered?

When putting together your professional liability policy, it is important to be aware of some of the most common exclusions so that your VC firm can plan accordingly and purchase coverage that will be able to fill these gaps in coverage.

Intentional criminal and illegal acts are not covered by your E&O policy, nor are acts that pollute or financial insolvency. It’s also important to name all of the entities that need coverage in your policy in order to guarantee coverage for everyone your firm wants to protect.

If you need copyright infringement and libel covered by your professional liability policy, talk to your brokers to see if these coverages can be included or if it is in the best interest of your VC firm to purchase separate coverage for these exposures.

Cyber insurance typically will not cover things such as the devaluation or theft of intellectual property as the result of a cyberattack and potential and future lost profits related to cybercrimes. Be sure to check with your broker to see what potential gaps in your cyber liability coverage can be filled by other policies.

What Does It Cost?

The factors that determine how much your venture capital firm will pay for errors & omissions and cyber liability insurance are similar to the ones that insurers look at for any other type of business.

Revenue

The more money your VC makes annually, the more it will pay for insurance.

Portfolio Size

The more businesses your VC invests in, the greater your liabilities are and the more you will pay for insurance.

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.

Industries of Interest

Venture capital firms that invest heavily in companies that work in high-risk industries such as biotech or cannabis will pay more for insurance than those who stick to safer industries such as software as a service (SaaS).

Claims history

If your venture capital firm 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 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

Your deductible is how much you will have to pay from your own funds before the policy payout kicks in. A high deductible means lower premiums. As policy limits get higher, insurers will typically demand that this increase should be followed with a higher deductible.

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