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Common IT errors and omissions that cause lawsuits

IT businesses accused of making professional mistakes or failing to complete work can be sued in an errors and omissions lawsuit. Disclaimers and insurance coverage can help reduce your risks.

Professional errors vs. omissions

An errors and omissions (E&O) lawsuit is typically filed due to incomplete or substandard work, or failure to meet a deadline. Clients usually resort to suing IT businesses to recover lost profits and costs from wasted time and reputational damage.

Though errors and omissions are usually grouped together in insurance and law, they are slightly different:

  • Errors are mistakes that IT professionals make, such as a bug in a software developer's code.
  • Omissions are instances of incomplete work or failure to prevent an undesirable outcome, such as sending unencrypted data that is intercepted by cybercriminals.

Common IT errors that cause lawsuits

IT errors that can prompt clients to sue your business include:

  • Failing to eliminate software bugs or introducing glitches to existing applications
  • Developing an application that has security holes
  • Developing software that is hard to use or does not work properly
  • Implementing software or systems that do not comply with laws such as HIPAA and HITECH
  • Building an application that does not meet client specifications
  • Causing major server, application, or website crashes
  • Copyright infringement, including using another party’s code, images, video, and other media without permission

Common IT omissions that cause lawsuits

Doing the job well is as important as doing the job up to spec. Your business could be held liable for an IT omission by:

  • Failing to deliver all the features that a client requested in a custom application
  • Forgetting to train clients in software and hardware security settings and use
  • Rushing or skipping the quality assurance process when developing software
  • Recommending substandard software or hardware
  • Enabling a data breach or responding to an incident too slowly
  • Failing to encrypt data in storage or transit
  • Designing a website or application that is not accessible to persons with disabilities
  • Missing deadlines or violating other contract terms
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Can E&O disclaimers help prevent a lawsuit?

Some IT businesses and website operators use disclaimers to reduce their E&O lawsuit risks.

Disclaimers can help your business reduce risks, but they do not offer bulletproof protection against lawsuits.

IT liability disclaimer examples include:

  • A medical website disclosing to consumers that information is not intended to replace professional health care advice or treatment
  • A web hosting business notifying consumers that it is not responsible for data breaches at customer websites
  • An online stock trading platform warning that past successful client investments do not predict future results

If you decide to add a disclaimer to your contract, product, or website, make sure to consult with an attorney to craft a message that is specific to your business and situation. Companies have been sued for placing disclaimers on web pages that few users visit, so make sure they are easily visible.

Protect your IT business with errors and omissions insurance

Disclaimers and meticulous work can help you reduce the risks of an E&O lawsuit. But you still need E&O insurance (also known as professional liability insurance) coverage to protect your company if a third party does sue you for professional negligence.

Additionally, if a client could sue your business for negligence in failing to prevent a data breach or cyberattack, you should also consider cyber liability insurance. This policy is often bundled with E&O in a package called tech E&O.

Cyber liability insurance is a must-have for tech companies

If your insurer does not offer tech E&O, you should strongly consider purchasing cyber liability insurance as a standalone policy.

Cyber liability insurance protects against data breaches. It covers the cost of notifying affected customers and providing them with credit monitoring services. Cyber liability policies also cover attorney's fees, court costs, and damages if a client sues you for failing to prevent a breach that affects their business.

There are two types of cyber liability insurance:

  • First-party cyber liability insurance protects your own data. IT businesses that store sensitive client or customer information like credit card numbers will want this coverage.
  • Third-party cyber liability insurance protects your clients’ data. If cybercriminals hack a server you are responsible for and steal client data, you can be held liable for damages.

Standalone cyber liability insurance policies include both first-party and third-party coverage.

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