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How Much Is E and O Insurance Worth?

How Much Is E and O Insurance Worth?

E and O Insurance protects IT professionals from lawsuit costs for a variety of allegations.

Thursday, January 09, 2014/Categories: data-breach

Professional Liability Insurance (also called E&O Insurance) can potentially save IT businesses millions of dollars in legal fees. Take, for example, this lawsuit about to go to trial:

The state of California is suing the IT contractor SAP Public Services. California hired the contractor to upgrade its HR software and oversee payments to its 200,000 employees. Unfortunately, things did not go smoothly.

SAP was hired for the $50-million project, but the software didn't work properly and now the IT company is being sued for $150 million – three times the value of its contract.

Is it possible to be sued for more than your contract? Yes. In fact, such suits are fairly common. The state of California alleges that SAP's software damaged its reputation and caused other problems. The state claims that it will take more time and effort to install a new payment system (it’s dropping SAP's software), so it is suing for the additional resources the transition will demand.

For SAP Public Services, an active Errors and Omissions Insurance policy could translate to millions of dollars of savings. And SAP isn’t the only business that could benefit from an E and O policy. In fact, IT firms are, because of the nature of their work, particularly susceptible to Errors and Omissions liabilities. (For an explanation of why, read "Why E&O Insurance Is More Important for Tech Firms than Others.")

How Much Is E&O Insurance: A Cost-Benefit Analysis for IT Small Businesses

Let's take a closer look at E&O Insurance and its costs and benefits. The cost of business insurance is fairly straightforward. For a small tech firm or IT consultant, Errors & Omissions costs usually range from $1,000 to $4,500 in annual premiums – consultants and smaller firms with less risk pay the lower amount. (Here's a more detailed look at the cost of E&O insurance for tech businesses).

The benefits of this insurance are numerous. They include…

  • Ability to sign contracts. Many clients will require you to have E and O Insurance before you sign a contract with them. Without it you could miss out on new clients and their referrals.
  • Cost certainty. A small business can budget for a few thousand dollars’ worth of annual premiums. It can't budget for a multi-million dollar lawsuit. E&O Insurance can make your finances more predictable. 
  • Protection from clients’ data breaches. E & O policies for tech companies usually include Third Party Cyber Liability Coverage. This policy covers you when a client is the victim of a data breach and decides to sue you for not preventing the breach (e.g., by strengthening the antivirus capabilities in software you built).
  • Coverage against expensive lawsuits. This is the main reason to buy an E&O policy. It covers you from lawsuits when a client alleges you made errors or were negligent in your work. Even when a client makes an inaccurate claim against you, E&O Insurance can pay your legal costs.
  • Help resolving lawsuits faster. Your insurance company and its lawyers are good at resolving lawsuits quickly. That’s their job. With funding from E and O Insurance, lawyers can often settle out of court, avoiding a long, protracted lawsuit, which can save you years of headaches.

If you'd like to get a free estimate on the cost of small business insurance, use our web

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