Do you think your General Liability Insurance policy covers all the risks of your technology business? If so, you're setting yourself up for some hefty liabilities. How hefty? They're the kind of costs that can take a small business to the cleaners.
The General Liability myth is just one of the common misconceptions among small technology businesses. In order to manage all your business's liability risks, and to fully protect your business assets, you need to understand the distinct coverage an Errors and Omissions policy offers. Read on to find out the truth behind some common myths about E&O coverage.
Myth No. 1: My General Liability Insurance Covers All My IT Risks
To put it plainly, it does not. Think of General Liability Insurance as your physical accident protection. It covers losses stemming from medical expenses, property damage, bodily injury to third parties, and defending related lawsuits. This policy excludes losses due to negligence, programming mistakes, and other errors - in other words, it won't cover claims related to the services you provide.
Errors and Omissions Insurance (sometimes called Professional Liability or E&O Insurance) covers mistakes due to things to like bad code or late delivery. It's the Malpractice Insurance for your IT business. E&O Insurance covers you when a client accuses you of making professional errors, including…
- Mistakes, oversights, and negligence in service.
- Failure to provide a service.
- Good faith violations.
- Documentation errors.
- Misrepresentation of facts.
For example, say you contract to deliver a revamped website to knock your client's competition cold, and then, before the agreed deadline, you lose part of your key design team and wind up delivering late. Sure enough, your client holds you responsible for lost sales and leads caused by the delay. Your General Liability Insurance won't cover that - but Errors and Omissions Insurance will. (For more on what your E&O Insurance will cover, read the article, "Does Your Errors & Omissions Insurance Cover THAT?")
Myth No. 2: I Don't Need E&O Insurance Because I Don't Make Mistakes
You're fooling yourself if your business plan is built on perfect scenarios - everyone makes mistakes. As good as you are, you can't possibly guarantee perfection, and it's unwise to try. And what about the work of your employees or contractors? You can't be everywhere at once.
Mistakes happen; some are big, some are little, but you can count on them happening, and the E&O policy tailored for your company will cover whatever level of risk is run by your organization.
Another point to keep in mind is that you don't have to do anything wrong to be sued. An upset client might sue whether or not you've actually done anything wrong - and the cost of defending yourself can be significant. Errors and Omissions Insurance covers those legal fees, keeping your business assets safe.
Myth No. 3: I Don't Need E&O Insurance if I'm Just Providing Advice
As a consultant, your professional advice is just as much a part of your service as installing software or designing an e-commerce site.
For example, if you recommend a computer program that doesn't pan out, your client could blame you directly for that software failure. You could face a charge that your recommendation caused serious loss of time and money to your customer's business - and that charge might have a big, fat dollar sign attached to it. (Find out more about how Errors & Omissions coverage works for those who provide advice in the article, "When the Cloud Service Your Recommended Gets Hacked.")
Consulting liabilities pose a significant risk for any small company, especially those in the technology sector. The costs to defend against any claim, even if it's groundless, can run the gamut from significant to monumental. Those are the kinds of potential losses that most small tech firms cannot afford to cover.
Myth No. 4: I Can't Afford an E&O Policy for Every Employee and Contractor.
You don't have to. Your E&O policy can be crafted to fit the size and scope of your IT firm, including employees and independent contractors. If you make use of part-time or volunteer help, such as interns, your Errors & Omissions Insurance can cover them all.
Myth No. 5: I Work from Home, Which Lowers my E&O Risk.
Your base of operations changes nothing when it comes to potential risks. The client who thinks you jacked up his database couldn't care less whether you work in your living room or on the moon - he's still going to want you to pay for correcting damage and the cost of lost business.
You're asking for serious trouble if you rely on Homeowners and General Liability policies to cover all your IT liabilities. E&O Insurance will protect your home business, even when you're on the road.
Myth No. 6: All Errors & Omissions Policies Are Alike, So Low Price Wins.
This misconception is similar to the General Liability myth. And that's not to mention the idea that you get what you pay for. This is especially true in insurance. The stakes are too high to settle for anything less than an E&O Insurance policy tailored for your company. Just the same, make sure you carefully review your needs with your TechInsurance agent to get adequate coverage for your operations. A programmer designing restaurant software runs a different level of risk than a company designing healthcare databases.
These are some of the factors your agent will take into account…
- Business size / annual revenue.
- Scope of business.
- Length of time in business.
- Number of employees.
- Professional designations.
- Claims history.
- Risk management procedures.
- Amount of coverage.
- Size of deductible
Other factors also shape your premium. Some are moving targets and can alter the cost of premiums from year to year. Your coverage needs to adjust as your business grows, or as your type of products and services change. Reviewing your insurance once or twice a year with your TechInsurance agent will make sure your coverage grows in line with your tech business.
Too many IT firms learn all about their E&O exposure when it's too late - when they have to make a claim and can't. Drill down now and talk to your agent about your potential IT liabilities. Review all the services you provide and how they're used so that you don't end up being blindsided by costs you didn't know you should prepare for.
Writtten by Brenna Lemieux - check her out at Google+ or Twitter