March 9, 2023
Technology Professional Liability Coverage
Technology Professional Liability Insurance is often known as Tech E&O. This form of commercial insurance is a must have for most tech companies. Tech E&O can help protect you from claims relating to the profesional services you provide to your clients. This line of coverage is often required under Independent Employment Contracts.
In the world of Commercial Insurance, coverages are split up amongst lines of coverage. These forms of insurance include General Liabilty, Cyber, Employment Practices, Auto Liability, Workers Comp, and numerous others. But none of these protect you from the professional services you provide to your clients.
General Liability often abbreviated GL insurance is sometimes seen as the first insurance contract that a business procures. However in the world of tech companies, the Tech E&O [Professional Liability] may be just as important.
Many small business owners are incorrect in thinking that having a General Liability policy fully protect them – it does not. Professional Liability or Errors and Ommissions insurance can be a very important type of coverage for any small business owner in the tech field. Often in the technology space this form of coverage is known as Tech E&O.
An important note on this article – the terms Tech Errors and Omissions, Tech E&O, and Technology Professional Liability – are all essentially the same thing.
What is Professional Liability Insurance:
The Hartford explains that “Professional liability insurance helps cover you and your company if you make a mistake in the professional services given to a customer or client.” They note that this form of important coverage may cover: “Negligence, Inaccurate advice, Negligence, [and] Personal injury, like libel or slander.” It is noted over and over with this type of insurance is that it often doe not require a mistake on your part this insurance may still be useful. Source.
Professional Liability insurance is often thought of as a must have for Engineers, Doctors, Accountants, but many business owners don’t think of technology companies as needing this important coverage. Well it is needed. The exact reasons is far more complex than the simple and typical example you imagine with a Physician handing someone the wrong prescription. Part of the confusion that exists with the need for it frankly is due to the other name for the product Errors and Ommissions. Truth be told you do NOT need to make an error nor an ommission to need this insurance. Regardless errors are prevalent in our society. They are prevalent in technological tools.
Tech Companies REALLY should have have Tech E&O. Think about it this way – what type of litigation are you most concerned with from your clients? Visiting your office and tripping over a chair or their systems crashing from advice that you provided them?
Examples of Theoretical Technology Professional Liablity Claims:
Software is written and installed that damages a companies computer systems.
A product that your company designs is installed, but not the latest version.
Your organization commits to a specific date to complete a project and fails to do so.
*of course NONE of these are perfect examples – as some of them might not be covered by a tech E&O claim depeneding on the policy and circumstances. But if you dont have a a professional liablity policy – what cover do you have anyways?
As the owner of a Tehnology company, regardless of your size, your final product is often your advice, installation, or execution. What happens when some of this goes awry?
Two Types of Professional Liability Policies for the Tech Industry:
One way of categorizing this type of insurance is to break them into two groups: Claims Made and Occurence. According to the III, “Most professional liability insurance policies are “claims-made,” meaning that the policy must be in effect both when the event took place and when a lawsuit is filed for a claim to be paid.” An occurence form might cover you for “an event that took place during the period of coverage…” Source. Although these statement are not necesarily true for Technology professionals.
There are of course other ways to sub categorize these types of policies.
Some Potential Features of Some Tech E&O Coverage forms:
Some insurers may consider providing coverage for the following elements, all of course under the Category for Professional Liability:
- Products and Services Liability
- Breach of Contract
- Sub Contractor Vicarious Liability
- Regulatory Costs
- Dishonesty of Employees
- Payment Withheld Fees
This is not a complete list and should more as some examples of possible coverages.
What types of Information are Needed to Get a Tech E&O Quote?
Some, but not necesarily all of the information required would be the following:
- Business Name / DBA[s] / Subsidiaries
- Legal Ownership Structure
- Contact Information of all Officers and their Titles
- Business Physical and Mailing Address, Website[s]
- Revenue, Expenses, and Other relevant Financial Information
- Current Insurance Coverage, Past Insurance Claims
- Very detailed information regarding the nature of the business
- Information about the nature and types of contracts used and in force
- Subcontractor Information
- Safety and Intellectual Property Business Information
- Regulatory Processes and Procedures
- Cyber / IT Procedures and Safety Methods Used
- Financial and Fraud related Questions
- Media Use and Procedures
Additionally during the underwriting process it is frequently common that the potential insurers can and will come back with more requests for more detailed questions based on original answers provided. As an example if you were to say that do use Stock Photographs. They may come back and ask where you source these stocks photos from? They could ask if their is a use agreement in place.
The insurers frequently want to know about some of your largest clients. What percent of those contracts make up the total amount of revenue. They may wish to see examples of contracts used.
One of the big things to inquire about now is data backup, cyber security and 2FA [Two Factor Authetication.] What security systems do you have in place? Does everyone follow them?
This is not an attempt to be a complete list.
Professional Liability vs General Liability Coverage:
There is ofen a lot of confusion about which coverage form would cover a given claim. Hence the solution to this problem – is often to have both. Travelers Insurance states that General Liability “is intended for damages due to bodily injury, property damage, personal injury or advertising injury arising out of your business premises, operations or products for which your business is legally liable. ” While Professional Liability “protects businesses against losses resulting from negligence, errors and omissions in the performance of a professional service.”
Professional Liabilty vs Cyber Liability:
Since tech workers work with technology sorting out the difference between a Cyber claim and an E&O claim, can likewise be…confusing. Thimble states that Tech E&O provides “coverage for mistakes made by a technology company that impacts its clients or customers.” While Cyber Liability “protects your company when your business is a victim of cybercrime. Importantly, these protections are in place regardless of your level of fault…”
But what happens with the mistake involves a cybercrime? Or if a cybercrime impacts you and forces your firm to make a mistake for a client? These exact coverages can be pretty tricky.
Why not consider getting both? A Cyber and Tech E&O policy might be a pretty solid bet. Layered on top of that General Liability policy – this might be a good starting place for your small startup.
The Trifecta Solution: General, Cyber, and Tech E&O:
The best solution for lots of technology companies is likely going to be to get all three forms of insurance: General Liability, Technology E&O, and Cyber. There are numerous reasons for this but the main one being that there are countless examples of claims that may fall within multiple categories. If you only purchase one of these you are less likekly to be satisfied with the ultimate result.
Tech Errors and Omissions Questions
Below are comon questions we get about this form of Insurance.
How Much does Tech Errors and Omissions Cost?
It is impossible to give you a number here. I have seen Tech E&O for $1,000 and I have seen it for over $23,000. Where you fit in this really depends on a number of factors and revenues earned. Scouting the internet on this subject I am amazed at other sites that share average numbers on the premiums associated with this form of insurance.
What Happens if I cannot Afford this type of Coverage?
In certain circumstances – Premium Finance Companies – can assist in paying the annual bill by financing it. This is generally not suggested though. If you are just unable to afford it – you would simply not have an insurance policy.
What are the Differences between the terms Tech Errors and Omissions, Tech E&O, and Technology Professional Liability ?
All three of these terms are basically the same thing. Different terms to mean the same form of insurance. The word professional liability is probably technically a better name. However E&O helps many consumers and business owners understand what the product is.
Why Do they Need to Know about my Past Insurance Claims:
Professional Liability companies need to know about your past tech claims because it is a rating factor and hence used to determine pricing. Firms that file more claims may be prone to more future claims. It may be a sign of a poorly managed organization. It is somewhat [but not exactly] similar to past driving accidents.
What Insurers Provide Tech E&O?
Lots of Insurers provide technology errors and ommissions policies. However, in this category of business, underwriting acceptance does seem depend signficantly on the sub category that you provide. Additionally – the types of clients that you partner will also be considered. That is all the long way of saying that there are lots of providers out there and it depends on your situation.
What Types of Tech Companies Need Professional Liability Insurance?
Lots of businesses need Tech E&O. These may include: Software Creators, Consultants of IT, Computer Hardware Repair, Website Builders, SEO Advisors, Project Management, IT Contractors, Metaverse Businesses, Social Media Managers, Cyber Security Professionals, Etc. The list is endless. There are a few special classes of IT that can be hard to obtain insurance for. Likely you know who you are.
The One Man Operation Need:
You may be surprised how many times agencies here consultants or startups state that “I am just a One Man Operation – I cant Affford all of this!” First off – being a one man operation does not make your risk any less risky and in some situations it can make it more risky. Second – insurance is often written based on revenues and profits – therefore if you are a smaller firm making less money – the quote estimates may cost less. Third – you have to start somewhere if you are going to grow.
A next important consideration is the Contractors Contract. AKA the agreement that you often sign when you start working with a client. In that agreement it is fairly common for them to REQUIRE you to carry many of these [and more] forms of insurance. While it might not be possible, in some situations, to get all of the insurances that they require – you can at least get something.
Technology Professional Liabilty / Tech E&O:
In Summation – Tech E&O might not be as expensive as many businesses fear. If you are in the space of providing technology, especially to large vendors – you really have to carry this form of coverage. The great news about Tech Errors and Omissions is that the coverage is currently available to lots of businesses. You just need to know – where to look.
