6 Technology E&O Claims Examples

What is technology E&O insurance?

Errors and omissions insurance, commonly referred to as E&O, protects professionals and their employees against clients who sue for negligence and inadequate work.

Tech E&O insurance covers costs like court fees and settlement payouts. Without E&O insurance, companies are held liable for client damages, which can cost millions of dollars.

This makes it a must for tech professionals like:

• Software developers
• IT consultants
• IT staffing firms
• Project managers

6 tech E&O insurance examples

Understanding tech E&O claims is critical because you'll know what to expect and be better prepared. There's a wide variety of reasons why your company might be facing E&O claims, making it necessary to choose a good insurance company. 

1. Data breach

The most common reason why clients sue technology companies is due to a data breach. Tech and IT organizations are handling terabytes of data every day, and black hat hackers attempt to access this for personal gain.

If you have one weakness in your firewall, you'll lose sensitive client data.

If clients believe your firm is at fault, the likelihood of incoming lawsuits is high. And even if the court finds it's not your fault, you'll still have to pay for lawyers and an array of court fees.

Fortunately, tech E&O insurance is specifically designed for technology companies and protects you against liability.

2. Breach of contract

When you’re starting a new working relationship with a client, it's essential to have a contract in place. This contract specifies the promises you make to clients.

However, sometimes you'll be unable to fulfill these promises due to something outside your control. This could be a pandemic or a market crash. If it negatively affects your client financially, chances are you'll need tech E&O insurance to protect yourself.

3. Breach of warranty

Another reason technology companies face E&O lawsuits is breach of warranty. This means clients feel your product or service didn't live up to their expectations and is now costing them money.

For example, if you offer a coding or web development product and a client's website crashes, they'll hold you liable for losses. 

You might think this won't apply to you since you offer a good product. But it doesn't matter how effective your product is; if clients don't know how to use it or have high (or  unrealistic) expectations, it could result in E&O claims.

4. Fraud

Fraud seems like a crime that only white-collar criminals engage in. But if you lie to a client when marketing your product or services and they realize you don't have the resources to fulfill commitments, they can sue you for fraud.

Even if you aren't being dishonest, unhappy clients might try to place their financial losses on you, and these tech E&O lawsuits are distressing.

5. Negligence

E&O negligence claims are common in the technology industry because companies fail to meet industry regulations, resulting in financial loss for clients. 

For example, let's say you helped a business code an app for their audience. But when you released the app, it contained bugs that negatively impacted the user experience. Your client then saw a sudden spike in churn rates.

The client can sue you even though it's a minor bug because the financial losses for them were significant. There are cases of tech companies without E&O protection being held liable for millions of dollars worth of losses.

6. Misrepresentation 

Although misrepresentation isn't common in the technology industry and the consequences aren’t that high compared to fraud or negligence, it's still important to inform and protect yourself against it. 

Misrepresentation occurs when you fail to disclose all information to a client before signing a contract. Let's say you're doing website management and the retainer agreement contract is $700 per month. But you failed to state that data storage costs another $200. The client could cancel the contract due to misrepresentation.

What Does a Tech E&O Policy Cover?

As technology continues to evolve and integrate into every facet of business, the risks associated with technology errors and oversights have grown exponentially. Tech E&O insurance has become indispensable for businesses that provide technology products or technology services, acting as a financial safety net in the face of client lawsuits and claims. But what exactly does a tech E&O policy cover, and how does it differ from other types of insurance? Let's dive in.

Core Components of Tech E&O Policies

At its core, a tech E&O insurance policy protects against claims arising from:

• Errors and omissions: Mistakes or oversights in the design, development, or delivery of your tech products or services. This could range from software glitches and coding errors to faulty hardware or network failures.
• Negligence: Failing to meet the standards of care expected in your profession. For instance, if your IT consulting advice leads to a data breach, you could be held liable for the resulting losses.
• Breach of contract: Failing to fulfill the terms of a contract with a client, such as not delivering a project on time or not meeting agreed-upon performance specifications.
• Misrepresentation: Making false or misleading statements about your tech products or services, whether intentionally or unintentionally.

Tech E&O vs. General Liability Insurance

While both types of insurance offer protection against liability claims, there's a crucial difference:

• Tech E&O insurance is specifically designed for businesses that provide technology-related products or services. It covers claims arising from professional errors, oversights, or negligence in the course of your work.
• General liability insurance covers claims for bodily injury or property damage caused by your business operations. For example, if a client slips and falls in your office, general liability insurance would cover their medical expenses.

Optional Coverages: Extending Your Tech E&O Protection

Many tech E&O policies offer optional coverages that can be tailored to your specific needs:

• Cyber liability insurance: Protects against claims arising from data breaches, cyberattacks, or other cyber incidents. Given the increasing frequency and severity of cyber threats, this coverage is becoming essential for many tech businesses.
• Intellectual property (IP) infringement: Covers legal costs and damages if you're accused of infringing on someone else's patents, copyrights, or trademarks. This is particularly important for businesses that develop software or other proprietary technology.

Industry-Specific Tech E&O Policies

One size doesn't fit all when it comes to tech E&O insurance coverage. Insurance providers often offer policies tailored to specific industries:

• Software developers: Focuses on errors in software code, product defects, and intellectual property issues.
• IT consultants: Covers errors in advice, system implementation failures, and data breaches resulting from their recommendations.
• Managed service providers (MSPs): Protects against claims related to network outages, security breaches, and other IT service disruptions.

Common Technology E&O Exclusions

While tech E&O policies offer broad protection, they typically exclude certain types of claims:

• Intentional acts: Fraud, criminal activity, or knowingly violating laws or regulations.
• Bodily injury or property damage: These are typically covered by general liability insurance.
• Prior acts: Events that occurred before the policy's effective date.

Understanding these exclusions is crucial when selecting a tech E&O insurance policy to ensure it aligns with your business's specific risks and needs.

By having a comprehensive understanding of what a tech E&O policy covers, you can make informed decisions about your insurance coverage and safeguard your business from the unique challenges of the ever-evolving technology landscape.

Tech E&O insurance made simple with Worth 

E&O insurance is essential for tech companies since the smallest mistakes have massive financial consequences that your firm can be held accountable for.

Fortunately, you’ll lower your chances of E&O claims by following basic rules like documenting everything, signing a contract before completing work, and building trust with clients.

But even if you're doing everything right, you can still face tech E&O claims. This is where Worth Insurance can help. With years of experience handling E&O claims, Worth Insurance gives you peace of mind knowing you aren't liable for client losses. 

So if you're looking to bulletproof your business, request a Worth Insurance quote within minutes.