What are the usual characteristics of Technology E&O Claims?

Technology E&O claims pose an increasing threat to technology companies due to the expansion of the tech industry over the last decade.

In 2010 only Microsoft and Apple were among the 10 most valuable companies globally.

Fast forward ten years. Google, Amazon and Facebook have joined Microsoft and Apple as tech giants that have significantly influenced our current world.

Technological advancements have noticeably transformed our routines with offerings like on demand services, cloud computing and streaming platforms adding a new level of convenience to our lives.

However along, with innovation comes new risks that necessitate fresh approaches and perspectives to minimize exposure to them.

This is where technology errors & omissions insurance comes into play.

The traditional errors & omissions or professional liability insurance was created to safeguard professionals providing advice or services to clients.
This specific type of insurance was created to provide protection for professionals such as lawyers, accountants, real estate agents and others who might face lawsuits from clients alleging services.

Tech Errors and Omissions (E&O) insurance is tailored to safeguard technology companies from losses linked to product or service failures, errors or negligent work. The costs associated with E&O claims in the technology sector can be significant including settlements, legal fees and court expenses regardless of fault.

Dealing with technology E&O claims not involves considerable expenses but also poses a risk to the reputation of tech companies if mishandled. This underscores the importance of having an E&O insurance policy, for modern tech firms.
What Kinds of Businesses Should Invest in Technology Errors and Omissions Insurance?
A man is shown holding up a shield symbolizing security with a laptop in the center while a woman expresses disbelief after facing technology E&O claims at her tech startup.

For technology companies it is essential to consider obtaining tech E&O insurance.

The primary risk in the technology sector arises from the handling of customer and client data by tech companies. Regardless of whether you’re a large corporation or a new tech startup the level of risk exposure remains consistent.

It is crucial for software as a service (SaaS) firms, e commerce startups IT consultants and project managers, software development companies and all other types of technology businesses to have technology errors and omissions insurance as part of their coverage.

Potential lawsuits could arise if you fail to meet contract deadlines or exceed budget limits. Additionally in case of a data breach compromising client information legal action could be taken against your company.

There are situations where customers or clients may take legal action, against your tech company.

Fortunately investing in tech E&O insurance can help alleviate a portion of the expenses associated with such scenarios.
Lets explore some technology errors and omissions (E&O) claims and understand how your tech company can prevent them and navigate through them if they arise.

Instances of Technology E&O Claims
illustrative instances of tech E&O claims

Regardless of the type of tech company you run there will come a time when your work will be questioned by your clients.

This holds true, for startups in their early stages as they are still ironing out the wrinkles in their products or services.

Dealing with technology E&O claims will not consume your time but also incur significant costs.

Resolving technology E&O claims can not be financially draining but can also lead to business disruptions and profit losses while you focus on addressing these issues.

It’s crucial to note that not all tech E&O policies provide the level of protection. Therefore it is vital to collaborate with an insurance agent or broker to assess your risk profile and secure coverage that addresses the specific risks faced by your tech company.
To learn more about how technology Errors and Omissions (E&O) policies function and the coverage they provide you can check out this video.

Technology E&O Claims Examples | Embroker

Now lets delve into some examples of E&O claims in the tech industry to give you a better grasp of the risks that tech startups commonly face.

Instances of Cybercrimes
every tech firm handles vast amounts of data regularly much of which is highly sensitive like credit card details and other personal data.

The greater the volume of data you manage the more enticing you become to cybercriminals.

It’s not just corporations that are at risk; as per the 2020 Data Breach Investigations Report from Verizon Business 28% of data breaches in 2020 affected small businesses.

In case a breach occurs leading to your clients sensitive information being compromised you might end up dealing with actions.

That’s why it’s advisable to have a sound technology E&O policy along with cyber liability insurance to ensure protection during incidents.

Claims related to technology E&O often argue that it was the companys responsibility to safeguard entrusted data implying that the company would be accountable, for restoring compromised information security.
A comprehensive cyber liability insurance policy will also include coverage for the expenses associated with hiring consultants and forensic experts to investigate a data breach and aid in restoring your companys infrastructure and reputation.

Violation of Agreement
A breach of contract occurs when your company fails to fulfill obligations outlined in a business agreement.

This failure to meet obligations or deliver promised services is one of the most common types of professional liability claims that arise.

Tech companies face heightened risks as every interaction with clients and partners involves some form of contractual arrangement.

Failing to fulfill responsibilities can lead to liability for losses incurred by clients or partners due to your inability to meet agreed upon terms.

Avoiding contracts altogether is not a solution as it could potentially harm your company more than benefit it.

The best approach to managing and reducing risks associated with business agreements is by obtaining tech errors and omissions insurance providing coverage in the event you’re liable for breaching a contract, for any reason.Professional Negligence
Instances of negligence arise when a business adversely affects a third party due to a lack of exercising reasonable care.

These claims typically involve mistakes, oversights or omissions made by you or your team that had an impact on another party.

In the realm of technology companies accusations of negligence often stem from coding errors that result in bugs or other issues for clients – errors that could have been avoided and are attributed to a lack of diligence and attention, on your companys part.

Violation of Warranty
An allegation of breaching warranty usually arises from the expectations a customer had regarding the performance of your product or service which were not met.

For instance if you assured a client that their website would be more reliable following your companys services but it continued to experience problems and crash post service the client might file a lawsuit alleging breach of warranty asserting that your service did not meet the standards promised by your company.

Even though such claims are often challenging to substantiate defending your business against an accusation of breaching warranty could still result in an expensive legal process.Intellectual Property Infringement
When discussing mistakes and omissions in the technology field copyright infringement within a tech company typically involves software. Errors and omissions in technology will offer protection if your company is accused of infringing on software copyrights or if another party is violating your copyright.

In the scenario your insurance coverage would handle defense expenses and potential settlement costs. In the case your policy would usually address the expenses associated with engaging a copyright expert to stop the infringement and seek compensation from the party infringing on your software copyrights.

Misrepresentation and Deception
If you promise a client a service for $400 per month but fail to disclose monthly fees that actually amount to $700 per month you could be subject, to allegations of misrepresentation.

Whenever you provide information or omit crucial details while enticing a client to make your offer appear more appealing than it truly is, you risk facing accusations of misrepresentation or fraud if the client feels they were intentionally misled.

A technology errors and omissions policy would cover expenses linked to legal actions.
Online Defamation
again when it comes to technology companies, instances of defamation such as slander and libel often take place in the online realm.

If your business has shared a statement that supposedly tarnishes the reputation of another entity or individual you could find yourself entangled in a legal battle over online defamation.

Any content present on your website or social media platforms that was published by an employee of your company and has the potential to harm someone Reputation or result in financial losses due to malicious campaigns or slander could lead to legal action against your business.

The rise in social media usage has made these types of allegations prevalent, as slander and libel can be carried out through comments and posts that may have been authored by external users unaffiliated with your organization.

Nonetheless under such circumstances vicarious liability persists since defamatory statements were disseminated on a website or profile managed by your company.Here are some tips to help you avoid technology errors and omissions (E&O) claims. It’s impossible to prevent your tech startup from facing these claims but there are some best practices you can follow to reduce the chances of them happening frequently.

One important step is always having a contract in place. Many technology E&O claims stem from disagreements. Having a drafted contract can protect your business and minimize the risk of facing such claims. Without contracts you might be more vulnerable to lawsuits that could arise due to the absence of formal agreements or clear expectations for your work.

If you’re new to creating contracts consider seeking assistance from a lawyer (whether in house or external) to develop templates, for the common types of contracts required by your business.
Remember to document all your work so that in case any issues arise you can back up or refute claims using emails meeting notes, bills, receipts and other records that could support various claims.

Maintain transparency by being truthful with your clients or partners if you encounter any challenges.

It’s better to be forthcoming and honest about delays or difficulties in delivering services and products on time. Communication with the parties and working towards finding a resolution is preferable to staying silent and risking potential claims against your business.

Always maintain communication with your clients and partners collaborating to address issues and set realistic expectations to ensure everyone is satisfied with the business relationships progress.

What are the typical coverage areas of a Tech E&O Policy?
An image of a laptop displaying a large umbrella as a symbol of protection against technology E&O claims

Even if you’re a startup in its early stages possibly having recently secured VC funding, profitability may still elude you. This is why insurance holds importance, for small businesses compared to large corporations.
Dealing with a lawsuit could throw off your growth plans or even lead to the closure of your business in extreme cases.

When it comes to safeguarding your tech startup investing in technology errors and omissions insurance is crucial.

As we’ve touched upon previously the risks that tech startups often encounter such as failure to perform or deliver contractual liability issues and professional negligence highlight the importance of having insurance coverage in place. This ensures that financial setbacks from situations don’t overwhelm a young company.

A standard technology. Omissions policy covers expenses like legal fees court costs, settlements and judgments.

It’s worth noting that technology E&O policies cannot be applied retroactively. This means you can’t wait for an incident to happen before getting coverage for it.

All errors and omissions policies operate on a claims made basis. This implies that your company is protected only if the policy was active, at the time of the incident and when the claim was made.
Securing tech Errors and Omissions (E&O) insurance once your business acquires its initial customer can provide you with the assurance to run your tech firm with confidence, free from concerns, about facing a financially burdensome legal dispute that could jeopardize your entire business.

Ensuring Sufficient Coverage
Regardless of the insurance policy you intend to purchase it’s crucial to collaborate with an insurance broker who understands your industry well and the specific coverage requirements of your business.

A competent insurance broker will assist your company in identifying risks establishing a risk profile for your business and guiding you in determining the necessary insurance policies to safeguard against your businesss most significant risks.

When discussing your technology Errors & Omissions (E&O) coverage needs with your broker here are some considerations and questions to address;

Ensure timely renewal of your policy to avoid any gaps, in coverage. If a lawsuit arises from an incident that occurred during a period when your policy was inactive even if you have since renewed it the claim may not be covered.

For instance if your software product undergoes updates and enhancements and a customer lodges a complaint regarding an update released while your policy was inactive you may not have coverage in such circumstances.

It’s essential to review exclusions as all tech errors and omissions policies include them.

One common exclusion relates to wear and tear.Some errors and omissions (E&O) insurance policies may not provide coverage for claims related to a product malfunction caused by wear and tear.

Additionally E&O policies in the tech industry typically exclude coverage for claims arising from illegal activities conducted by you or your employees. Financial insolvency is another exclusion in tech E&O policies.

While some policies do offer protection against copyright infringement and defamation claims others may not. If you require this type of coverage it’s advisable to consult with your insurance broker to identify the suitable solution. Adding intellectual property coverage to your tech E&O policy is often recommended in scenarios.

Moreover given the online landscape today technology E&O claims frequently intersect with cyberattacks and cybercrimes. Consequently many brokers advise obtaining a cyber liability policy alongside your tech E&O policy to address any gaps, in coverage effectively.