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 technology companies’ first line of defense in the event their product or service fails.
Let’s start with two things to give context about the need for Tech E&O Insurance and when it applies:
- Why most companies (particularly startups), need Technology Errors and Omissions Insurance to cover their business risk.
- Why standard Product Liability or General Liability Insurance policies might not offer sufficient coverage to cover professional liability risk.
Why Your Business Needs Tech E&O Coverage
Just as attorneys or doctors need malpractice liability insurance to cover the services they provide, so technology companies often need an insurance policy to cover the potential failure of their code. If your business sells software, firmware, or any type of ‘code’ that is created or deployed for customer use, your company will likely benefit from a Technology Errors and Omissions Insurance policy.
When you sell your software to a customer, you likely highlight all the benefits your application provides to your users–saved time, increased sales, added efficiency, and reduced costs are the common selling points for software. A customer’s perception is that they are paying for software that will deliver the features and benefits you promise.
But what happens if the use of your software, code, or application actually causes lost sales or increases costs because of a software bug or error? In these situations, customers might consider suing your company for the damages associated with the real or perceived failures of your service.
In the event of a lawsuit alleging damage because of the failure of your company’s service, a Technology Errors and Omissions Insurance policy will respond to pay for costs associated with investigations, legal defense, and even potential settlement costs. This coverage protects you, your company, your employees, and any assets your company owns.
It is also worth noting that your business can still be sued even if it didn’t directly cause the damages. In most cases, a Tech E&O policy will still respond the same way.
Your Business Sells a Service, Not a Product
In the insurance world, software, firmware, code is considered a service, not a product. Therefore, no protection is afforded most technology-driven businesses’ ‘product’ under a Product Liability policy or under a General Liability policy’s products and completed operations coverage.
Now that you understand how the policy works and when it applies, you might be wondering what some of the exclusions are. There are three primary types of exclusions from a Technology Errors and Omissions policy.
Technology Errors and Omissions Exclusions
sentiment_dissatisfied Malicious, Intentional, Illegal Acts
When someone within your company intentionally causes harm, the costs and damages associated with that harm is typically excluded from a Tech E&O policy.
However, most insurance policies only exclude coverage for the specific individual who commits the intentional damage-causing act, still protecting any innocent parties, including the business entity.
The only circumstance where coverage might be entirely excluded is when the individual who committed the malicious act was an officer of the company.
gavel Fraud
If you complete your application for insurance in a fraudulent manner or with information that you know is inaccurate or incorrect, then your insurance company will likely exclude or cancel Technology Errors and Omissions coverage entirely.
➡️Related: Can a Business Insurance Policy Be Cancelled?
devices Cyber Liability
If your computer systems are hacked and customer data is lost or stolen, your Tech E&O policy will not respond. Instead, to cover data breaches and hacks to your business’s computer systems, turn to a Cyber Liability Insurance policy.
➡️Related: The Difference Between Cyber Liability and Technology Errors and Omissions Insurance and how the two policies work together.
At Layr, we offer a wide selection of Cyber Liability Insurance policies, including a pre-underwritten Cyber Liability policy with automatic approval, a flat rate,and $250,000 in coverage for businesses with an annual revenue of less than one million. Our policies can be purchased online in about 10 minutes without sending an email or picking up the phone.
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. Lean on Layr to get you the coverage you need to protect your business as it grows.
