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E&O Insurance for Subcontractors: Three Questions Answered

Errors and Omissions for tech sub-contractors

Monday, March 24, 2014/Categories: errors-and-omissions

Errors and Omissions Insurance (also known as Professional Liability Insurance) covers professionals from mistakes they make during the course of doing business. E&O Insurance is generally considered one of the most important kinds of insurance for tech firms to carry because of the high cost of defending negligence claims (which may involve claims regarding misuse of client data, software malfunction, or system failure). 

Most startup tech firms recognize that they need to carry E&O Insurance, but freelance tech professionals working as contractors or subcontractors are more often uncertain about what kind of coverage they need to have.

Here are answers to three of the most common questions we see regarding E&O coverage requirements.

Q: If I’m a subcontractor for a larger firm, do I still need Errors and Omissions Insurance?

A: It depends on the wording in your contract. Your employment agreement should have a section that notes definitively whether or not you are covered under the firm’s errors and omissions policy. If you are covered, this coverage may be referred to in your contract as “vicarious liability,” a term that means that the larger firm is liable, as your employer, for your work.

Most often, the question of whether or not a firm covers its contractors and subcontractors depends on how its insurance company provider defines the term “insured party.” Each insurance provider uses a slightly different definition of this term. Some include full-time employees, part-time employees, and contractors in the definition; others exclude contract or part-time workers.

Q: Do I need E&O coverage if my contract has an indemnity clause in it requiring the larger firm to defend me?

In insurance policies, indemnity usually refers to coverage. An indemnity clause typically means that a larger firm has taken on liability – in this case, for its contractor or subcontractor. If the firm you’re working with has an indemnity clause requiring coverage of your work, you probably do not need to carry your own Errors & Omissions Insurance.

Q: If I do need E&O Insurance, how much should I buy?

If you are working as a contractor for a firm that does not cover you under its E&O policy, you will likely need to purchase your own coverage. Your insurance needs depend on the specific projects you do, your professional history, and a few other factors. To get an idea of your coverage needs, feel free to request a free quote from our online system or call an agent familiar with E&O insurance for tech contractors at 800-668-7020.

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