What Every IT Business Needs to Know About Errors and Omissions Insurance
From time to time, we all screw up – even expert IT professionals. We make mistakes. And when you do, your technology Errors and Omissions Insurance can help cover any potential legal fallout.
Technology E&O Insurance Can Save Your IT Business Money
When you’re performing IT work for a client, whether it’s installing antivirus software or troubleshooting a malfunctioning server, you are providing a professional service. If something goes wrong and your client decides to file a lawsuit against your business, a technology Errors and Omissions Insurance policy may be able to cover the legal costs associated with any professional errors.
This is why Errors & Omissions Insurance is the policy IT consultants are most likely to purchase in addition to General Liability Insurance.
Nace Naumoski (@nacenaumoski),
Stewart Bernstiel Rebar & Smith
(@SBRSLawyers), explains why, after General Liability, an Errors & Omissions policy is what IT professionals should be looking for.
“General Liability policies generally exclude any damage arising directly from the work you perform,” Naumoski says. “In other words, if you perform your work poorly, a commercial General Liability policy might not cover that, and that’s where an Errors & Omissions Insurance policy might come in.”
Technology Errors and Omissions Insurance goes by many names, including technology E&O and Professional Liability Insurance. No matter what you call it, it’s important to know is what it does – which is basically cover your business’ behind if something goes wrong.
If a claim is brought against your business, a technology E&O policy can help by paying for the resulting legal expenses and any potential judgments for things like…
- Missed deadlines.
- Incomplete work.
With an E&O policy in place, your business is less vulnerable to financial risk.
Certain Clients Won’t Hire You without Technology E&O
Depending on the types of services you offer and the clients you are going after, you may not be able to snag a plum gig without proof that your business has technology E&O insurance in case things go sideways.
“A lot of contracts will require it, depending on who the vendee is,” says
Brian Dusek (@brianjdusek),
McCullough, Campbell & Lane LLP.
Why is that? When it comes to technology-related snafus, the cost to mitigate the problem has the potential to be pricey. In order to reduce their own financial liability, many clients will want to ensure that if a major issue arises, any contractors performing work for them are adequately insured.
Let’s take a look at a few examples of what might cause a client to file a Professional Liability lawsuit:
- You install a new antivirus program on a client’s computers, and a week later, they’re hit with a ransomware attack, which knocks out the CEO’s computer for three days.
- A client’s e-commerce website is taken over by a hacker, and it takes you a week to figure out how to regain control of the domain. Your client sues you for the estimated revenue they lost while their site was hacked.
- A data breach occurs and hundreds of your client’s customers had their information stolen, including credit card numbers.
As seen here, the financial fallout can be massive, especially in the case of a data breach. If your IT business is found to be liable, your technology E&O Insurance should have your back.
Technology E&O Insurance Covers a Lot – But Not Everything
While your E&O policy will provide coverage for most professional mistakes, certain things may be excluded. It’s always a good idea to thoroughly review your policy.
“Professional Liability doesn’t cover it all, it depends on the policy,” Dusek says. “As every insurance lawyer will say, read your policy, because each one can be different.”
You are often able to customize your E&O policy to include the specific coverage that is most crucial to your particular business, like Cyber Liability Insurance for example. “As an IT business you need to realize what your risks are and look at all the things that can happen,” says Michael Carroll (@InsuringLawyer), president of Insuring Lawyer.
Whether you are buying a new policy or getting ready to renew an existing one, make sure it has the coverage you need.
For more scenarios that may lead to IT E&O claims and tips on how to reduce your risk, check out “Common Errors and Omissions Exposures for Technology Businesses.”
Business Owner’s Policy. BOP Insurance combines General Liability Insurance with Business Property Insurance into a single policy, normally at a lower rate than if you bought them separately. It’s typically only an option for businesses in low-risk industries, like IT. Take advantage of the premium savings and buy the bundle!
Professional Liability Insurance. Also known as technology Errors & Omissions Insurance, this coverage kicks in if your business faces a suit over a mistake or error you make. And that’s even if the claim is unfounded or frivolous.
Data Breach Insurance. This coverage can protect you if a client experiences a data breach and can tie it back to work you did for their company. Data breach lawsuits tend to be expensive, which is why it’s important to make sure you’re covered, especially for any third-party claims. The good news is that most E&O Insurance comes with built-in data breach protection.
Subcontractor insurance or self-employed insurance. Make sure that any subcontractors or other self-employed workers you bring on for a job have their own Professional Liability Insurance. Kaufman advises working “with people who have their own independent business entity, instead of hiring the individual directly.” Meaning, hire subcontractors who act as their own small business – complete with Professional Liability Insurance.