Technology errors and omissions insurance (also known as tech E&O, technology professional liability insurance and technology service liability insurance) is a relatively new line of coverage used primarily as a technology companies first line of defense in the case of a failure of product or service. Before we get into that, we should explain why most companies, and especially startups, need technology errors and omissions insurance and why a standard product liability insurance policy or general liability insurance policy might not be enough. In the insurance world, software, firmware, or any type of “code” being created or deployed for customers is not considered a product thus no protection is afforded under a product liability policy. Software is considered a service therefore technology companies often need an insurance policy to cover failure of their code. This is not unlike how an attorney or a doctor needs malpractice liability insurance to cover the respective services they provide.
When you sell your software to a customer, you probably highlight all the benefits your application provides to your users. Often time savings, increased sales, added efficiency, and reduced costs are some of those benefits. The customer perception is that they are paying you money in order to experience the benefits you claim your software will bring. But what happens if the use of your software or code results a negative value beyond the price your customer paid you? What if your application causes lost sales or increases costs because of a software bug or error? In these situations, customers could considering suing your company for the damages associated with the real or perceived failures of your service. This is a prime example of when a technology errors and omissions insurance policy will respond to protect you, your company, your employees, and any assets assets by paying any costs associated with investigations, defenses, and even potential settlement costs. It is also worth noting that your business can still be sued even if it didn’t directly cause the damages. In most cases, the policy will still respond the same way.
These policies act similarly to an attorney that omitted a piece of evidence that could have won a case or a doctor that failed to realize the compatibility issues of two prescription drugs. Each of these individuals are professionals in their respective field and are legally held to a higher standard when delivering their services. The software your business develops and sell is held the same legal standard.
Now that you understand how the policy works and when it applies, you might be wondering what some of the exclusions are. There are primarily three types of exclusions for technology errors and omissions.
sentiment_dissatisfied Malicious, Intentional, Illegal Acts
This is when someone within the company intentionally causes harm. Most insurance policies only exclude coverage for the specific individual who commits the act resulting in a claim while still protecting any innocent parties including the business entity itself. The only circumstance where coverage might be excluded in entirety would be when the individual who committed the malicious act was an officer of the company.
If you complete your application for insurance in a fraudulent manner or with information that you know is inaccurate or incorrect, then the insurance company will likely exclude coverage entirely.
devices Cyber Liability
If your computer systems are hacked resulting in lost or stolen customer data, the policy will not respond. Why? Because there is an entirely different insurance policy to address it called cyber liability insurance and often packaged with a technology errors and omissions policy. At Layr, we offer a wide selection of cyber liability insurance policies including a pre-underwritten, automatic approval, flat rate, $250 per year cyber liability insurance policy providing $100,000 in coverage and that can be ordered online in minutes without any underwriting process or phone calls.
To recap; if your company creates or deploys software or any code-based applications as part of its product or service offering, there is a very high likelihood that you need to have a technology errors and omissions insurance policy in place to cover any damages your customers experience as a result of bugs, failures, or downtime. Remember, product liability insurance and general liability insurance do not apply to services and software is considered a service.