Errors and Omissions Insurance
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Errors and Omissions Insurance

Errors and Omissions Insurance is one of the most popular policies for IT business owners (the other is General Liability Insurance). It helps cover lawsuits when a client sues you over a mistake in your code, a missed deadline, or an oversight that caused them a financial loss.

What Is Errors & Omissions Insurance?

Don’t make mistakes? Of course you don’t. The thing is, you don’t have to: you might get sued anyway. When a technology problem causes one of your clients to lose sales, they may try to recover any way they can. One option is to sue the IT company behind the technology.

The good news is that Errors and Omissions Insurance can help cover the costs of such a lawsuit. Read on for a look at what technology E&O covers, how it works, and when it can benefit your business.

What Does Errors and Omissions Insurance Cover?

Here are some hypothetical tech-related lawsuits that would likely be covered under an Errors and Omissions Insurance Policy:

A sys admin forgets to remove access for an ex-employee. She logs back into her employer’s network and steals client lists, which she uses at her new job (a competitor!). The sys admin’s client sues for this omission.

A software developer moves her code to production and finds that nothing is working. This causes a two-week delay in the project while she figures out what happened, delays the launch of an e-commerce site, and leads her client to sue.

A web hosting company is hit with a ransomware attack. Its servers are down for 48 hours as it restores backed-up data. Clients affected by the outage file lawsuits.

In each of these situations, a client sued their IT provider because of a problem with their technology. When that happens, E&O Insurance (also called Professional Liability Insurance) can help pay for:

  • Lawyers to build your defense.
  • Financial damages (if you’re found liable in court).
  • A settlement to resolve the lawsuit out of court.
  • Other court expenses.

Learn more about E&O Insurance coverage.

Why Do Technology Businesses Buy E&O Insurance?

To be candid, a lot of small IT companies get E&O Insurance for the first time because a client requires them to have it. These requirements are usually laid out in contracts, so be sure to read yours carefully to make sure you’re in compliance.

Why do clients want you to have E&O Insurance? Think about it from your client’s perspective.

Say you were looking to hire a software developer. What would you be worried about? You’d be concerned that the developer might write bad code. Or maybe you’d be worried he wouldn’t deliver the project by agreed-upon deadlines. You’d want assurance that he’s as good as he says.

When your prospective clients evaluate you, they’re thinking the same things. But they’re taking it one step further. They want financial protection in case something does go wrong. That’s what Errors & Omissions Insurance provides.

If a mistake comes up in your work, you’re backed by an insurance company that can pay for damages, should the client sue. Clients get reassurance that if outages and mistakes cost them money, they’ll be able to sue and recoup their losses.

Technology Errors and Omissions Claims for Consultants, Developers, and Freelancers

So what does Errors & Omissions Insurance look like in the wild? It depends on the kind of IT work you do. Below are three sample E and O claims as they might look for the types of businesses we help most often.

E&O Example for IT Consultants

You’re hired as project manager for a client who wants to migrate sales data to an SaaS solution. A mistake by your subcontractor corrupts the client’s data and a batch of client contact info representing $300k in potential sales is lost. The client sues you for the error.

E&O Example for Software / App Developers

A client hires you to build a mobile app. When you deliver it, the client is upset. You built an app that works for iOS, but the client also wanted one for Android. Even though he forgot to mention that in the scope documents you both signed, he decides to file an E&O lawsuit.

E&O Example for IT Freelancers

You renovate a client’s website, but a month later the client is angry. Turns out your new code is causing the site to load slower (average page load time has increased from 2 to 4 seconds), and the client claims this is affecting its SERP positions.

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