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Should Every IT Firm Have Errors & Omissions Insurance?

The short answer is yes. E&O is a must for every IT professional.

Beyond the reasons why outlined above, E & O coverage benefits IT professionals in these key ways:

  • It serves as personal protection. Even as a careful independent contractor, you could be named in an E&O suit brought by a large corporate client related to a project you did minimal work on (as in the example above). Even if your involvement in the project was small, the cost of your legal defense could be enormous.
  • It helps win new clients. E and O is not only useful in protecting your business against client claims. It can also help you land more clients. Carrying a robust Errors & Omissions policy demonstrates to clients that you have the resources necessary to serve it no matter what happens.
  • It protects you from mistakes (even when you're not responsible). Many IT experts think that they won't make mistakes, probably because they have been in the business for years without a single unhappy client. But nobody's perfect. E&O Insurance protects you whether your slipup or a mistake by an employee or contractor causes your client a loss.
  • It covers the gaps left by General Liability Insurance. In the insurance world, "general" does not mean "comprehensive." Your General Liability policy offers essential protection, but only against third-party claims of injury or property damage. If a client sues you over the work you did, your GL policy won't pay for the suit. But your E&O policy will.
  • It protects you against frivolous claims. Here's a scary reality: even if you've done your work exactly as described in your contract, an unhappy client could sue you. While such a suit is unlikely to hold up in court, you'll still be on the hook to present an initial defense of your business, which can cost thousands of dollars in lawyers' bills and hours of your time. Having an E & O policy in place means you don't have to worry about how the whims of unpredictable clients can hurt your bottom line.

Important Note: Errors and Omissions Insurance works on a "claims-made" basis. This means that, in order to receive benefits, your policy must be active both when you file a claim and when the incident related to the claim occurs. In other words, if you start and stop E & O coverage with your individual contracts, you likely won't have protection when you need it most.

Next: Questions to Ask Your Agent about Your Errors and Omissions Policy

70% of businesses raise prices or cut hiring when sued