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Whether your company employs hundreds of consultants or you work out of a home office, if you make your money providing IT services, you need Professional Liability insurance.
Also known as Errors and Omissions Insurance or Professional Indemnity Insurance, Professional Liability insurance is your most critical coverage. Professional Liability insurance protects you and your business from potentially catastrophic litigation caused by charges of professional negligence or failure to perform your professional duties. This might include errors and omissions resulting in loss of client data, software or system failure, claims of non-performance, or negligent oversell.
If you are a subcontractor working on a client site, your client may require that you provide proof of General Liability and Professional Liability insurance.
Professional Liability insurance may be described in your contract in this way: "Contractor will maintain at its expense: Professional Liability insurance in the amount of $1,000,000 including coverage for errors and omissions caused by Contractor’s negligence in the performance of its duties under this agreement."
Your business provides a highly specialized service that many of your clients don’t fully understand. At the same time, the projects you work on are highly sensitive and critically important to your client’s business. But you’re only human. If your errors and omissions result in loss of client data or a software or system failure, or if you fail to perform your duties, your client may be left unable to operate its business. This risk opens you up to litigation. That’s where Professional Liability insurance comes in.
For example, if your work damages a company’s client database, the cost to reconstruct that database may exceed typical costs for replacing hardware and software. In fact, some client companies have won extremely large settlements when subcontractors have lost irreplaceable data. Professional Liability insurance would cover such costs, within policy limits.
If you develop software as a professional independent contractor, copyright ownership may be a murky issue, and much depends on the terms of contract. If you design Web sites and software, or you work with or "fix" previously purchased software for clients, you are at risk for allegations of copyright infringement. If you should be accused of infringement, a Professional Liability insurance policy that includes intellectual property liability coverage would respond with defense and settlement cost up to the policy limits.
You may think your General Liability insurance policy covers such instances, but that’s not the case. General Liability insurance covers claims of bodily injury and property damage only, and typically excludes coverage for claims related to the delivery of professional services. The liability risk associated with your company’s professional errors, omissions and negligence can be far greater than the bodily injury and property damage risks covered by your General Liability policy.
Whether a claim is baseless or not, mounting a legal defense can bankrupt your company. Professional Liability insurance protects your company and your future by responding to professional liability claims and helping you keep your business operating as potential lawsuits move through the courts. Without Professional Liability insurance, your company could be financially overwhelmed.
Because laws and legal precedents governing the relatively new technology industry are still being developed, computer professionals are often in legally uncharted territory. That makes Professional Liability insurance even more critical to your company’s long-term survival, as you may find yourself being sued tomorrow for actions that are completely in line with today’s consulting expectations. Because professional requirements and duties are largely undefined in legal terms, Professional Liability insurance protects you against the unknown and the unforeseeable.
Want more detailed information about how Professional Liability Insurance works? Download our free eBook, Errors & Omissions Insurance for IT Freelancers, Contractors, and Small Businesses: the Definitive Guide.
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Below are some actual scenarios in which technology companies have faced litigation. In such scenarios, Professional Liability insurance can pay for a strong legal defense and save a small business from bankruptcy. You may face similar professional liability risks every day:
Be sure your Professional Liability policy includes the following key features: