The short answer? Absolutely.
Here's a breakdown of the major ways Errors and Omissions Insurance can protect a small technology firm from disastrous expenses.
Errors and omissions claims are not covered by General Liability Insurance.
Many owners of tech startups mistakenly believe that their General Liability Insurance offers them coverage for claims related to errors and omissions, but this is not the case. Errors and omissions are considered matters of professional liability (and, in fact, E&O Insurance is sometimes called Professional Liability Insurance); most general liability policies offer coverage only for property damage and certain personal injuries.
Errors and Omissions Insurance protects you against mistakes, even when you're not responsible.
Imagine this: your newest hire loses his smart phone, from which he often handles his work emails. Suddenly, sensitive client information has been compromised and you may be responsible for compensating your clients for damages.
Or maybe you recommend a program that, when it runs, causes a client's website to crash, leaving him or her unable to do business for several days. That client could come after with a lawsuit seeking compensation for lost wages, and without E&O Insurance, you might have to pay those costs out of pocket.
Errors and Omissions Insurance gives you the financial power to maintain your reputation.
Assume one of the above scenarios led to a lawsuit and you had enough money on hand to pay the claims in question. How would making such a payment affect your business operations in the long term? There's a good chance that draining your cash reserves would inhibit your ability to hire new employees and / or serve clients, both of which could hurt the reputation of your business.
With E&O Insurance in place, however, you can defend yourself in court, pay any judgments or fines assigned to you, and in general demonstrate to current and future clients that you are a safe partner and a good risk.
E&O coverage protects you from the costs of defending yourself against frivolous claims.
Here's a scary reality: even if you are completely blameless in a given situation, an unhappy client could bring legal charges against you alleging wrongdoing. While the court may be highly unlikely to side with the client, the cost of defending yourself can reach the tens of thousands of dollars between court costs and attorney's fees.
Plus, mounting a legal defense can be a serious time drain, which most tech professionals simply can't afford, as they're already stretched thin serving their clients.
Warning: Errors and Omissions Insurance protects you on a claims-made basis.
One final note on purchasing E&O Insurance for your tech firm: most E&O policies pay benefits on a claims-made basis. This means that insurance companies only pay claims if the policy was both in effect at the time the challenged work was completed AND in place at the time the claim was submitted.
Your insurance agent can explain to you in greater detail how to protect yourself and your business from E&O lawsuits.
Writtten by Brenna Lemieux - check her out at Google+ or Twitter