Tech E&O: Errors and omissions insurance for technology companies

When a client accuses your tech company of an error or oversight, your business needs to be prepared for the consequences. Lawsuits can be devastating to both your daily operations and bottom line, especially for smaller tech companies with limited resources.

It's crucial to maintain continuous coverage because tech E&O is a claims-made policy. This means it must be active when the claim is filed, and coverage is limited to errors or oversights that occurred on or after the policy’s retroactive date.

When an errors and omissions insurance policy includes third-party cyber liability coverage, this combined policy is called technology errors and omissions insurance, or tech E&O. You might also see this coverage called tech professional liability insurance.

While E&O helps cover legal fees related to lawsuits from a client's dissatisfaction with your professional services, third-party cyber coverage can pay for your business's legal expenses if a client files a lawsuit after experiencing a data breach or a failure to maintain PCI compliance.

A cyber insurance audit can help determine whether tech E&O is the right fit for your risk profile by assessing vulnerabilities, identifying coverage gaps, and evaluating remote work security risks.

A tech E&O policy provides liability coverage related to:

• Oversights and mistakes
• Failure to deliver promised IT services
• Breach of contract
• Third-party cyber liability (data breach lawsuits)
• Intellectual property and media liability (for certain professions)

In the IT industry, a mistake can have serious consequences. For example, a DNS error at a web hosting company or other service provider could lead to website downtime and potential lost customers for a client.

If a client sues over professional negligence, it can be costly for your tech company - whether or not you're in the wrong. Technology errors and omissions coverage can safeguard your business from the resulting legal costs.

Your clients may depend on your technology products and services to run their businesses. If an SaaS company has an outage, or an SEO consultant misses a critical deadline, the client could sue to recoup financial losses.

Your tech E&O policy would help pay the costs of a lawsuit claiming you failed to provide a certain technology service, or install promised equipment due to a supply chain issue.

No one ever wants to break a contract, but sometimes factors outside of your control can delay a project. For example, a mobile app developer or data analyst might leave a company mid-project, leaving the business unable to meet its deadline. Technology E&O insurance would help pay for an attorney, a court-ordered judgment, or a settlement for lawsuits alleging a breach of contract related to the delivery of your professional services.

Third-party cyber liability insurance provides financial protection if a client sues your business for failing to prevent a data breach or for other negligent acts related to network security.

For example, a client could sue an IT consultant who recommended insecure software for their computer systems that were subsequently affected by a cyberattack. This policy would help pay for your business's legal fees, court-ordered judgments, or settlements related to the lawsuit.

The costs your own company incurs after a breach, such as forensics, data restoration, and customer notification, are covered by first-party cyber insurance (a standalone policy), not this third-party coverage.

Freelance web developers, app developers, or tech companies that build websites, apps, and other content should make sure their tech E&O policy includes coverage for intellectual property (IP) and media liability claims.

Intellectual property coverage provides protection for lawsuits related to trademarks and software copyright infringement. Media liability insurance covers lawsuits related to content built, designed, or published by your business.

While tech E&O insurance covers numerous professional and cyber risks, it does not provide complete protection. Exclusions vary depending on your insurance company and specific policy they offer, so it's always best to speak with an insurance agent to ensure you have sufficient coverage.

Here are the most common risks excluded by tech E&O policies:

Other policies are better suited to cover different common business risks:

General liability insurance: This liability policy covers expenses related to client bodily injuries and property damage (unrelated to your digital services), along with advertising injuries like slander. Technology businesses can bundle it with commercial property insurance for savings in a business owner's policy (BOP), or add electronic data liability coverage to protect against lost data.

Cyber insurance: You may want to invest in standalone cybersecurity insurance, also known as first-party cyber coverage, to protect your own company's data and pay for your business's expenses resulting from a breach.

First-party cyber insurance covers direct costs from various cyber risks, including data restoration, notification expenses, forensic investigation, cyber extortion, phishing, and denial-of-service (DoS) attacks. This policy can also include business interruption insurance to cover business income loss related to a cyberattack or data breach.

Fidelity bonds: Because IT companies are often privy to sensitive data, an employee could jeopardize your business by engaging in unlawful access of client data, theft, or fraud. Fidelity bonds safeguard your business when an employee engages in these criminal acts.

Workers' compensation insurance: This policy covers medical bills and partial lost wages from work-related injuries and illnesses. Most states require technology businesses with employees to purchase workers’ compensation.

Employment practices liability insurance (EPLI): This policy covers claims from employees regarding discrimination, wrongful termination, or wage disputes.

Directors and officers (D&O) insurance: This policy provides financial protection for the personal assets of your company's directors and officers against claims of actual or alleged wrongful acts (like misrepresentation, misuse of funds, or breach of fiduciary duty). While E&O protects the company from claims related to the services you provide, D&O protects the management from claims related to how they run the company.

Commercial auto insurance: This insurance coverage is required in most states for business-owned vehicles. It can cover property damage and medical bills in an accident involving your IT company vehicle, along with theft, vandalism, and weather damage.

Are you ready to protect your IT business with technology errors and omissions insurance? Complete Insureon’s easy online application to get quotes from top U.S. insurance providers. Once you find a policy that fits your needs, you can begin coverage in less than 24 hours.