What Does Tech E&O Insurance Cover?
Technology Errors & Omissions insurance or tech E&O insurance for short is a specialized professional liability policy written for a variety of companies in the technology industry.
In this video and post, I’m going to go over what tech E&O covers, what it doesn’t cover and how it’s purchased.
So, I’ve spoken before about E&O or Professional Liability Insurance and you can see that video here.
Today I’m going to talk about Tech E&O which is a similar form of insurance – but it’s different.
Its purpose is to cover technology firms for lawsuits that may arise alleging from an error or malfunction of a technology product or service that causes financial damages to a customer or other third party.
Like other Errors & Omission policy forms, tech E&O will exclude claims and lawsuits which arise from bodily injury and property damage. These types of claims are the domain of general liability insurance.
Here’s an example of what would be covered under this policy.
A tech firm provides a software product to a client which experiences a glitch, that causes the client’s network to be inoperable for 4 days until the glitch is resolved.
The client loses tens of thousands of dollars each day they are out of business and sues the tech firm for lost income, reputational damages, and added operational costs amounting to $250,000.
So, a glitch, malfunction, or error causes financial damages to a third party, they sue the tech firm to recover from that loss.
Tech E&O steps in to answer and defend against the lawsuit.
If it goes to trial the insurer continues to pay defense costs and ultimately any settlement reached with the claimant out of court, or as settled by the court, up to the policy limits.
Now I’ve had some tech firms tell me that their product or service could never cause damages and if there was a glitch, they could fix it quickly.
That’s fine, but what happens if a lawsuit arises from a glitch or problem?
Without E&O insurance, the tech firm is paying for lawyers out of pocket because the company’s general liability insurance will not cover the kind of claims we’re talking about.
When should you buy Tech E&O insurance?
If you’re a start-up, I would recommend lining up and purchasing tech E&O along with other critical coverage parts like Cyber Insurance, a Business Owners Policy as soon as operations start- especially if you’re going to be looking for capital.
Investors will be looking to be sure you have the proper coverage.
And, if you are raising capital, then D&O or directors and officers liability insurance is a must as well.
Now I just mentioned Cyber insurance and I sometimes get questions if Cyber and TEch E&O are the same, or do they cover the same things.
The answer to the question is no, cyber and tech E&O are not the same.
They cover two different exposures and here’s a quick rundown.
From a liability perspective if your customers’ data is breached and customers sue you for failing to safeguard their private information a cyber policy will pay for that type of claim.
A tech E&O policy will not.
Tech E&O as I’ve described covers you for claims which allege- errors, omissions, negligence, product malfunctions, failures, and glitches.
Some insurers will offer both Tech E&O and Cyber insurances in a single policy form which I know makes this even more confusing.
The advantage of a combined policy form is that if a claim bleeds over from E&O to Cyber or vice versa you’re covered under one policy and there’s no fighting between insurers of who covers what and for how much.
What types of tech firms purchase Tech E&O?
Tons – software developers, website designers, IT consultants, system integrators, hardware manufacturers, electronic component manufacturers, communication equipment and installation firms, telecoms, ISPs, Website hosting companies, and many more.
Have questions on Tech E&O that I didn’t cover here?
Would you like to see what Tech E&O would cost your company?
Why not give me a call or drop me an email.
We represent a wide range of insurers writing tech E&O and are experienced in helping startup tech firms as well as established firms with their insurance needs.