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Technology Errors & Omissions Insurance in Action: a $17 Million E&O Claim

One IT contractor is getting sued for $17 million because of an unhappy client. Here's how to make sure you're not on the hook for a million-dollar lawsuit.

Wednesday, April 30, 2014/Categories: business-liability-insurance

The Republic recently reported on an IT lawsuit that could cost one tech company more than $17 million. A North Dakota insurance agency filed a lawsuit against Aon eSolutions, a Chicago IT vendor that was overhauling the agency’s network and other infrastructure.

As an IT consultant, you've undoubtedly experienced some of the issues that plagued this tech contractor. Aon eSolutions began working on the complicated upgrade but faced delays and problems integrating the enterprise software.

When the project went over budget and took longer than originally outlined, the insurance agency filed a huge lawsuit against the IT vendor, claiming professional negligence, fraud, deceit, and other nasty things.

To help you get a better understanding of the risks involved with IT work, let's look at some of the common reasons clients can sue you and what you can do to protect your business.

Failure to Meet Client Expectations Can Lead to IT Lawsuits

Professional liabilities are the responsibilities an IT contractor has to complete projects, protect the client's data security, and deliver high-quality work. Any failure to fulfill these duties can lead to a lawsuit.

What can an IT consultant be sued for? Lots of things. One of the challenges of managing IT risk is that you're responsible for so many facets of the work.

IT solutions essentially form the infrastructure of a client's business. You can be responsible for how their data moves, how quickly they are able to process sales, and the way they digitally interact with customers. Because IT is intrinsically linked to a business's functionality, you're on the hook for countless liabilities.

Let's look at some of the common reasons IT contractors are sued:

  • Missed deadlines.
  • Projects that go over budget.
  • Failure to provide software that performs each function the client needs.
  • Slow performance of software.
  • Compatibility and integration problems.
  • Lost data.
  • Issues with data security, hacking, cyber security, and data breaches.
  • Recommending a third-party software solution or vendor that delivers poor results.
  • Failure to find errors during software testing.
  • Web host outages.
  • Software flaws, bugs, and other "features."

As you know, when something goes wrong, it's often the tech contractor who gets blamed. For example, say you recommend a cloud-based solution for a client. If the client’s servers crash during their peak business hours and they lose sales, you can be sued. While that seems unfair, it's the unfortunate reality of working in the tech industry.

IT E&O Insurance Protects Small Business from Bankruptcy

For a small tech contractor, a million-dollar verdict could be a death sentence. There's no way the majority of small IT businesses could afford that kind of financial burden by themselves. And that’s to say nothing about how much time it wastes to be embroiled in a legal dispute.

If you're sued, you'll have to shell out money for lawyers, investigations, and the damages you owe clients. Many lawsuits – even the most basic business lawsuits – take more than a year to resolve. Between the lost income and legal expenses, many small businesses are forced to file bankruptcy.

This is particularly troubling because, as we pointed out in our article "Java Update Reveals Why Business Software Is More Vulnerable than Consumer Software," many clients use a patchwork of enterprise software. This can mean that clients are slow to upgrade and use outdated software that is more likely to be hit by a data breach or have other problems.

All this paints a worrisome picture: your IT business is susceptible to lawsuits that could destroy your finances. That's why Errors and Omissions Insurance is so common among contractors. It covers the cost of all the lawsuits we mentioned above.

This insurance helps make sure that if you're ever in a position like Aon eSolutions and are being sued in a million-dollar lawsuit, your insurance company can pay your legal bills – not you.

 

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