Professional Liability Coverage
As a small IT business owner, you probably juggle multiple clients and projects simultaneously. Even if you’re one of the best multi-taskers out there, it’s always possible for something to go wrong.
One tiny error in a piece of code could cause a program to malfunction. A typo on a client’s website could accidentally redirect traffic to the wrong URL – a competitor’s. And when things go really wrong, that angry client might slap your business with a lawsuit.
A Professional Liability Policy by Any Other Name: You’re Still Covered
If a client decides to sue you, a Professional Liability Insurance policy can help protect you from the cost of the lawsuit by paying for:
- Attorney costs.
- Court fees.
- Settlements or judgments.
Even if a lawsuit is meritless, you might still find your IT business shelling out thousands of dollars in legal fees unless you have adequate liability coverage.
If you’re a Game of Thrones fan, you’re probably familiar with the Many-Faced God worshipped by the Faceless Men. Think of Professional Liability as the many-named insurance policy. It also frequently goes by the handles Errors & Omissions Insurance, Malpractice Insurance, and more. (You can read more about its multiple aliases in “The Many Names of Professional Liability Insurance.”)
No matter what you call it, what’s important to know is what it does: protect your business against the potentially high cost of a lawsuit should you be sued for either making an error in your work or failing to complete all, or part, of a project.
Some business owners mistakenly think their General Liability Insurance policy will also cover professional errors, but that is simply not the case.
“General Liability policies generally exclude any damages arising directly from the work you perform,” says attorney Nace Naumoski (@nacenaumoski), partner at Stewart Bernstiel Rebar & Smith .
Who Needs Professional Liability Coverage?
No matter how you do business – as the owner of a small IT business or as an IT subcontractor or freelancer – you should consider investing in the coverage provided by a technology Professional Liability policy. It can help protect your business by providing up to $1 million in coverage.
Ponying up to purchase a Professional Liability policy might also help you land new clients. Many businesses won’t hire vendors who don’t have Professional Liability coverage, and if you’re a subcontractor, the businesses that work with you might require it to minimize their own risk.
“The vendee may be looking to limit its liability to the extent that it outsourced or delegated that authority to the IT company,” says attorney Brian Dusek (@brianjdusek), partner at McCullough, Campbell & Lane LLP .
How Easily IT Projects Can Go Wrong
While you may be a total IT rock star, it only takes one mistake for your entire business could go belly-up if you don’t have Professional Liability Insurance to defend you against a costly lawsuit. It can happen more easily than you might think. For example, what if:
- You’re an IT contractor and you install a firewall on a client’s computer network. Apparently your mind wandered because you miss a critical step during installation, allowing a virus to get through and wipe out the client’s data.
- In a fit of ambition, you take on four new clients at once. Now you’re struggling to meet all of your deadlines. As you fall behind, you miss an important deliverable for one client that delays a product launch. The client sues you for not delivering services as promised, plus the revenue from potential lost sales.
- While working on an e-commerce website, you temporarily disable the security features to make edits. Unfortunately, you forget to reactivate the security protocols. Your client’s customers’ information (including credit card numbers) is left exposed in a data breach. The costs to mitigate the data breach mount quickly, and your client sues you for inadvertently rolling out the welcome mat for cyber thieves.
Data breaches and cyber liability are major issues for anyone working in IT. Fortunately, the Professional Liability Insurance coverage we sell also typically comes with Cyber Liability Insurance built in. Check with your insurance agent to make sure Cyber Liability is included in your policy.
“Potential coverage for data security issues is an ongoing issue that’s very active in the courts right now,” Dusek says. Some insurers insist that certain policies are not meant to address data security issues. As Dusek points out, “it all depends on the exact wording of the policy.” In other words, double check your policy.
For more insight on the importance of Professional Liability Insurance coverage for your business, see “How Professional Liability Insurance Can Help You Fight a Lawsuit.”