6 Tech E&O Claims Examples

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    Tech E&O insurance protects your business against client losses.

    However, it’s still vital to prepare for and understand tech E&O claims and what causes them.

    We’ll cover the six most common E&O claims examples, giving you a detailed understanding of E&O so you're equipped with the knowledge you need to reduce the possibility of claims.

    What is E&O insurance?

    Errors and omissions insurance, commonly referred to as E&O, protects professionals and their employees against clients who sue for negligence and inadequate work.

    E&O insurance covers costs like court fees and settlement payouts. Without E&O insurance, companies are held liable for client damages, which can cost millions of dollars.

    This makes it a must for tech professionals like:

    • Software developers
    • IT consultants
    • IT staffing firms
    • Project managers

    6 tech E&O insurance examples

    Understanding tech E&O claims is critical because you'll know what to expect and be better prepared. There's a wide variety of reasons why your company might be facing E&O claims. 

    1. Data breach

    The most common reason why clients sue technology companies is due to a data breach. Tech and IT organizations are handling terabytes of data every day, and black hat hackers attempt to access this for personal gain.

    If you have one weakness in your firewall, you'll lose sensitive client data.

    If clients believe your firm is at fault, the likelihood of incoming lawsuits is high. And even if the court finds it's not your fault, you'll still have to pay for lawyers and an array of court fees.

    Fortunately, tech E&O insurance is specifically designed for technology companies and protects you against liability.

    2. Breach of contract

    When you’re starting a new working relationship with a client, it's essential to have a contract in place. This contract specifies the promises you make to clients.

    However, sometimes you'll be unable to fulfill these promises due to something outside your control. This could be a pandemic or a market crash. If it negatively affects your client financially, chances are you'll need tech E&O insurance to protect yourself.

    3. Breach of warranty

    Another reason technology companies face E&O lawsuits is breach of warranty. This means clients feel your product or service didn't live up to their expectations and is now costing them money.

    For example, if you offer a coding or web development product and a client's website crashes, they'll hold you liable for losses. 

    You might think this won't apply to you since you offer a good product. But it doesn't matter how effective your product is; if clients don't know how to use it or have high (or  unrealistic) expectations, it could result in E&O claims.

    4. Fraud

    Fraud seems like a crime that only white-collar criminals engage in. But if you lie to a client when marketing your product or services and they realize you don't have the resources to fulfill commitments, they can sue you for fraud.

    Even if you aren't being dishonest, unhappy clients might try to place their financial losses on you, and these tech E&O lawsuits are distressing.

    5. Negligence

    E&O negligence claims are common in the technology industry because companies fail to meet industry regulations, resulting in financial loss for clients. 

    For example, let's say you helped a business code an app for their audience. But when you released the app, it contained bugs that negatively impacted the user experience. Your client then saw a sudden spike in churn rates.

    The client can sue you even though it's a minor bug because the financial losses for them were significant. There are cases of tech companies without E&O protection being held liable for millions of dollars worth of losses.

    6. Misrepresentation 

    Although misrepresentation isn't common in the technology industry and the consequences aren’t that high compared to fraud or negligence, it's still important to inform and protect yourself against it. 

    Misrepresentation occurs when you fail to disclose all information to a client before signing a contract. Let's say you're doing website management and the retainer agreement contract is $700 per month. But you failed to state that data storage costs another $200. The client could cancel the contract due to misrepresentation.

    Tech E&O insurance made simple with Worth 

    E&O insurance is essential for tech companies since the smallest mistakes have massive financial consequences that your firm can be held accountable for.

    Fortunately, you’ll lower your chances of E&O claims by following basic rules like documenting everything, signing a contract before completing work, and building trust with clients.

    But even if you're doing everything right, you can still face tech E&O claims. This is where Worth Insurance can help. With years of experience handling E&O claims, Worth Insurance gives you peace of mind knowing you aren't liable for client losses. 

    So if you're looking to bulletproof your business, request a Worth Insurance quote within minutes.