How to file a technology errors and omissions insurance claim
Technology businesses accused of negligence may need to file an errors and omissions insurance (E&O) claim. Learn how this process works, what coverage usually includes, and what your policy might exclude.
Where technology E&O claims start: professional negligence
Whether it’s a work mistake that cost a client thousands of dollars or simply a missed deadline, you may be accused of professional negligence.
Negligent acts generally fall into two categories: errors and omissions.
- Errors are mistakes such as a web developer writing code that causes a site outage.
- Omissions are professional services oversights, such as a cybersecurity expert forgetting to patch a security hole.
Clients that accuse a technology company of professional negligence typically seek damages for alleged errors and omissions. That can lead to an errors and omissions lawsuit capable of draining your funds and disrupting your business.
Accusations of professional negligence are often official legal actions, such as a court summons or a notice of arbitration proceedings. However, they can also arrive via phone, email, or verbally.
No matter how you receive the news, you may need to file a technology errors and omissions insurance claim.
What E&O insurance covers
Even if your small business has decades of experience, professional errors happen. For this reason, most tech businesses carry E&O insurance, also known as professional liability insurance.
Examples of events that technology E&O policies cover include:
- Developing software that doesn’t work properly
- Implementing IT systems that don’t comply with laws
- Building software that doesn’t meet client specifications
- Causing server, application, or website crashes
- Rushing or skipping quality assurance and testing
- Failing to secure information, applications, or systems
- Missing deadlines that cause financial loss
Read your E&O policy carefully and ask your agent about any potential coverage gaps.
E&O is a claims-made policy. That means to provide coverage, your E&O insurance policy must be active both when the claim was filed and when the alleged incident occurred.
Insurance providers may allow you to add a retroactive date to protect against events that happened prior to coverage. Your insurance agent can tell you if this is an option.
What technology E&O insurance usually doesn't cover
E&O coverage varies by policy. What one policy may offer protection for another may not.
Most E&O insurance policies exclude coverage for:
- Criminal, illegal, malicious, or dishonest actions
- Services or products provided under another entity not named as a policyholder
- Damages against or for another insured named in the policy, such as a partner suing her own company
- Libel or slander
- Bankruptcy or financial mismanagement
- Fines or penalties
- Eviction or wrongful entry
- Invasion of privacy
- Bodily injury to a third party
- Property damage
- Copyright or trademark infringement
You may need to purchase additional small business insurance as part of your risk management strategy.
For example, general liability insurance protects against client injuries, copyright infringement, and client property damage. Fidelity bonds reimburse your clients if one of your employees steals from them.
How to file a technology E&O insurance claim
Even a verbal accusation of professional negligence should be taken seriously.
Immediately notify your insurance provider in writing. If you wait for a written complaint from the client, the insurance company could deny coverage on the grounds that the delay jeopardized its ability to defend your business or offer a settlement.
If you do receive notification of a lawsuit and must file a claim with the insurer, you should:
- Call the claims number listed on your policy.
- Fill out any insurance claims paperwork.
- Provide the insurance company representative with all documents relevant to the case. This includes descriptions of the work you performed and all correspondence with the client.
- Ask your insurer if they will assign an attorney to you or if you should seek your own legal defense.
- Follow the insurance company representative’s instructions and promptly respond to questions and appointments.
Whatever you do, make sure you avoid these legal traps:
- Never admit to negligence or agree to pay a settlement.
- Don’t try to fix the alleged errors or omissions.
- Never sign any documents from the client before discussing them with your representative.
- Don’t discuss pending legal actions with outside parties.
What happens after you file a technology E&O insurance claim?
Once you fill out the insurance provider’s E&O claim paperwork, your representative will advise you if your policy covers the incident.
If the insurance company initially denies your claim, you can write a letter of appeal that includes any additional evidence that might help your case. An appeal doesn’t guarantee the insurer will reverse the decision, but it’s typically worth the effort.
If the insurance company covers your claim, it may negotiate an out-of-court settlement. Unfortunately, clients won’t always take this route.
If the case goes to trial, your business insurance provider will appoint legal defense and identify any experts who can help with your case.
Your technology E&O policy will pay for attorney's fees, court costs, and damages if your business is held liable.
Filing an E&O claim may require paying a deductible. Ask your representative about additional costs, including policy limits and state laws that could affect your case.
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