What is Technology Errors and Omissions Insurance?
Authored by Simon Taylor
06th December 2023
Technology Errors and Omissions Insurance, or Tech E&O, is a type of insurance coverage designed to protect technology companies, professionals, and service providers from liability claims arising from errors or omissions in the performance of their technology services.
Definition of Technology Errors and Omissions Insurance
Errors means mistakes, inaccuracies, or negligence in the delivery of technology services or products.
Omissions means failure to complete, perform, or deliver technology services or products, as promised.
What does Tech E&O cover?
Technology errors and omissions insurance, otherwise known as Tech E&O, provides financial protection by covering the costs associated with defending legal actions, damages awarded by the courts, and settlements agreed with your insurer. Tech E&O otherwise known as professional indemnity insurance, will cover allegations arising from errors or omissions in the provision of technology services - for example this could include issues that arise with coding errors, software bugs, project delays, data breaches, breaches of contract or other professional failures.
Why Tech E&O should be combined with cyber liability insurance?
It's worth noting that not all insurer's products are the same - data breaches for example might be covered under your the Network Security and Privacy Liability coverage section of your professional indemnity policy. However, data breaches will also commonly be covered under your Cyber Insurance - this policy will potentially provide a wide range of additional covers such as cyber incident response, notification expenses, cyber extortion, cyber business interruption, and cyber crime.
Therefore, if you provide a technology service we would recommend that cyber liability insurance and professional liability insurance covers are provided by the same insurer. Unfortunately, if you have two insurers providing the same cover - they can end up disputing your claim under the policy becauase they can argue the other insurance policy should accept the claim. Additionally, combining your professional liability insurance and cyber insurance can make your insurance spend more cost effective.
Why Tech E&O insurance coverage is important to technology companies?
1) Client Requirement
Our clients, especially large corporations or government entities will typically require proof of your E&O insurance before entering into a contract with your business. A certificate of insurance can identifies your limit of tech E&O insurance demonstrates that you have a policy which they can potential make a claim under. It also demonstrates professionalism and financial responsibility, instilling confidence in your counterparties that you can secure the necessary cover.
2) Financial Protection
As a technology company the legal costs associated with defending allegations can be very expensive, not to mention if any awards to put your client back in the same financial position. If your clients are highly dependent upon your services, or you are contracting with counterparties that have significantly more resources - arranging adequate technology error and omission insurance can be a valuable investment.
3) Compliance and Risk Management
In some industries or jurisdictions, having E&O insurance may be a legal requirement. It ensures that businesses comply with industry regulations and standards, avoiding potential legal penalties or restrictions on their operations. Tech companies and professionals often operate in a dynamic environment where errors or omissions can occur despite best efforts. Tech E&O insurance serves as a proactive risk management strategy, providing a safety net in case something serious goes wrong.
Who needs technology errors and omissions insurance?
Technology based businesses such as app developers, IT consultants, IT support services, IT training, cloud computing, cybersecurity, database management, hardware design, hardware manufacture, managed service providers, PaaS, payment processors, SaaS, software developers and engineers, system integrators, web development, will need technology errors and omissions insurance when providing services to their clients.
Please note the above is not an exhaustive list of technology businesses that could need Tech E&O coverage.
Can you provide some examples of tech E&O insurance claims?
Errors and omissions insurance claims are often not disclosed publicly due to confidentiality agreements and legal considerations. Companies involved in such claims typically aim to resolve them discreetly.
Healthcare software implementation:
A healthcare software company was contracted to implement a new electronic health record system for a hospital. The software had errors that led to data discrepancies and patient record inaccuracies. The hospital faced operational challenges and potential patient safety concerns, leading to a dispute and potential legal action against the software company.
Financial software failure:
A financial technology company implemented new software for managing customer accounts and transactions. Due to a coding error, the software failed to accurately calculate interest rates, resulting in financial losses for both the financial institution and its clients. The financial institution sought compensation from the software provider for the error.
Why general liability insurance is not enough for technology businesses?
General liability insurance can cover bodily injury and property damage claims - however, given most tech businesses provide an service, the coverage provides limited protection. However, you are a hardware distributor or manufacturer this is a very important cover because it can cover liabilities related to products the business manufactures, sells, or distributes and should be combined with your professional liability insurance / Tech E&O.
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About the author
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.