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E&O Liability Higher than Many Realize for IT Staffing Firms

E&O Liability Higher than Many Realize for IT Staffing Firms

IT staffing firms face significant liability for E&O and EPLI issues even after their employees have been placed.

Friday, January 10, 2014/Categories: errors-and-omissions

March unemployment numbers released today show that the U.S. economy continues to inch toward recovery, with 88,000 new jobs created last month and the official unemployment rate creeping down to 7.6 percent from 7.7 percent a month ago.

The figures show that, while we're definitely in recovery mode, this recovery is slow at best, as many companies add part-time and contract workers rather than taking the risk of adding full-time hires. All this, of course, means that IT staffing firms are placing lots of workers in temporary and part-time roles. And with increased volume of placements comes an increased risk of E&O liability.

Errors & Omissions Liability Risks Extend Past Background Checks

One thing we've found from working with IT staffing businesses is that they often don't realize that they face a significant risk exposure once they've placed a employee.

Many IT staffing firms mistakenly believe that their biggest liability exposure comes from potential criminal activity on the part of the people they place. Because of this, they spend lots of energy conducting background checks but not as much verifying that the employees they place have the necessary skills for a job.

In reality, though, the risk of E&O liability from a placed employee who doesn't have the appropriate skill set for a job is much greater than crime-related risks. Consider these recent claims reported by IT staffing firms:

  • An IT staffing company provided computer consultants to implement a new online billing system for a taxi service. One of the consultants made programming errors, which resulted in the taxi company being unable to collect fares over a holiday. This incapacity led to revenue loss, which prompted the company to file a claim. The insurer and the taxi company settled for $250,000.
  • An IT staffing company provided computer consultants who helped set up a new computer system for a firm. One of those consultants made a mistake that led to the erasure of a substantial amount of client data. The firm sued for the costs of data replacement as well as the cost of finding a replacement staff member and received $165,000.
  • An IT staffing company provided computer consultants to set up a new system for a firm. The firm insisted that the system did not work, deleted it, and hired a new team of consultants. The claimant filed suit and the staffing firm's insurance provider paid $120,000, all for defense costs.

The third example is an excellent illustration of how a plaintiff's charge can lead to costly litigation, even if the claim is unfounded. That the insurance provider only financed defense costs suggests that the IT staffing firm was not found liable for any wrongdoing - but would have had to fork over $120,000 to defend itself against the plaintiff's claims if it hadn't had adequate Errors & Omissions Insurance in place.

Protect Your IT Staffing Firm

Ensuring that your IT staffing firm doesn't face expensive legal and settlement costs is a matter of performing due diligence when verifying employees' skills and carrying adequate insurance coverage (especially E&O and Employment Practices Liability Insurance).

To find out whether your business has adequate coverage in place, contact a TechInsurance agent today.

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