What is tech E&O insurance?
Tech E&O insurance is a specialized policy that protects technology firms from lawsuits after client financial losses.
Let's say you're providing clients with a product that boosts web conversions. But after they install the software, their website crashes due to a small coding error. Your client holds you accountable for lost leads and sales, and depending on the website size, this can cost millions.
Fortunately, tech E&O carriers step in and protect your business against these lawsuits, so you aren't liable for customer losses.
What types of companies need E&O insurance?
Here are some companies that'll benefit from E&O insurance:
- Software and information technology specialists
- Website designers and developers
- Computer consultants
Software and information technology specialists
If you're developing any type of app or software for customers, you must have E&O insurance. This is because a tiny coding flaw can result in massive financial losses, and clients might hold you accountable for these losses.
By taking out E&O insurance, you can code and develop software with peace of mind knowing your carrier will take care of potential lawsuits.
Website designers and developers
Website designers and developers should also use E&O insurance when dealing with big clients.
Like software development, if a website you’ve developed for a client crashes, resulting in lost revenue for the client, lawsuits are likely.
Another group of technology professionals that benefit from tech E&O insurance is computer consultants.
Computer consultants advise companies on what technologies they should implement into their business. These technologies often include different software, hardware, and workstations.
However, if your advice negatively impacts customer financials, you'll need E&O insurance to protect you.
But what, exactly, does tech E&O insurance cover?
What does tech E&O insurance cover?
Technology errors & omissions insurance covers:
- Errors and omissions
- Data breaches
- Breach of warranty
- Copyright infringement
- Court and lawyer fees
Errors and omissions
The most common reason E&O insurance companies pay out is mistakes or negligence.
Let's say you're developing software for an ecommerce store, but a minor bug in the code caused the site to undergo maintenance for two days. Depending on web traffic, your client will lose thousands and will likely seek compensation from you.
Fortunately, if you have tech E&O insurance, your carrier takes care of everything. This allows you to code and develop innovative applications without worrying about lawsuits.
The tiniest mistake can lead to devastating consequences when storing customer data.
You can keep upgrading cyber security; however, it's almost impossible to guarantee the safety of client data as hackers are developing new methods every day.
But if you have tech E&O insurance, you'll be happy to know that your carrier will sort out all client lawsuits resulting from data breaches.
Breach of warranty
Tech E&O also covers breach of warranty. Let's say a client buys your software but fails to use it properly. They might think that you're making false claims, and if this causes a loss in sales, your client probably won't understand.
In the tech world, copyright infringement lawsuits are everywhere. Because software isn't a physical product, companies constantly fight over intellectual property rights.
So if you're launching a product in an existing industry, and competitors think you’ve copied their code, they’ll file a lawsuit. Thankfully, tech E&O insurance carriers won't only pay settlement costs; they'll hire the best lawyers to defend you.
Court and lawyer fees
Even if everything goes well and the court dismisses a client's lawsuit, you'll still have to pay thousands in lawyer fees. If you're a small tech company, this is a real challenge. Many startups take out loans or pay out of their own pockets.
With E&O coverage, you can continue developing your product and attracting customers while your carrier pays these hefty fees.
What are the risks involved with tech E&O?
These are the two main risks to consider when taking out E&O insurance:
- Does your policy cover new products?
- Is your software protected from copyright infringements?
Does your policy cover new products?
If you have tech E&O insurance but release a new product or an updated version of an existing product, there's a high likelihood your policy won't cover it. This is troublesome since any bugs that cause losses won't be protected.
You always want to update your tech E&O policy when releasing new products. You might have to pay a higher monthly installment, but it safeguards you from errors.
Is your software protected from copyright infringements?
Not all carriers cover copyright infringements. So before getting a policy, sit down with your carrier and ask if they’ll defend you against copyright lawsuits.
How do you get the most out of your tech E&O insurance policy?
Here are three factors to consider when signing up for tech E&O insurance so you can get the most out of it:
- Types of claims covered
- Insurance rating
- Customer support
First, talk to your carrier about what's covered and what isn't. Not all carriers are the same, and you want to protect yourself against lawsuits from potential errors like data breaches, software glitches, and breaches of warranty.
Next, look at a carrier's insurance rating since it gives you an idea of their financial strength. The most credible third-party ratings are AM Best and Standard and Poor's.
You also want to read reviews about customer support. This is important because when you're going through a lawsuit, you're already stressed—you’re going to want someone to guide you and ensure that everything is taken care of.
5 tech E&O examples
Let’s have a look at five typical E&O examples:
1. Data breaches
Data breaches are a common reason clients sue technology companies.
For example, imagine you're gathering customer information, but someone manages to break through your firewall and access this private data; customers will sue if they believe your business is at fault.
But if you have E&O insurance, your carrier pays the legal fees and settlement costs.
2. Breach of contract
Sometimes you can't fulfill the promises you made when signing a contract. This can be entirely outside of your control—maybe the market declined, or a pandemic hit. Either way, if it harms clients financially, you can expect lawsuits.
This is another example of where E&O insurance helps. It protects your business so you can focus on regaining customer trust and attracting new clients.
3. Breach of warranty
You may face lawsuits if clients feel your product didn't live up to their expectations or the promises you made. And like a breach of contract, this is out of your control.
Maybe the customer isn't using your product correctly, or their original expectations are too high.
With tech E&O insurance, you can rest easy knowing you won't have to dig into company cash reserves to pay settlement fees.
4. Copyright infringements
If you're designing a piece of software and another company accuses you of copying their code, you could face lawsuits and pay legal fees.
These infringements won't only cost you financially, but they'll harm your image in the eyes of customers.
Fortunately, tech and E&O insurance help restore your brand identity while using long-term strategies to rebuild consumer trust.
5. Employee mistakes
Tech E&O also protects your company against employee mistakes.
Let's say one of your employees clicks a phishing link, exposing you to hackers. If these hackers access sensitive client information, you'll need protection against losses.
But even without employees, E&O insurance is still required. If you're providing cyber security services and a client's employee makes a mistake that gives hackers an entry into data storage, the client might think it's your fault and sue.
Tech E&O insurance is simple with Worth Insurance
Tech E&O insurance protects your firm against client losses, which is crucial for business survival.
It safeguards your brand against data breaches, copyright infringements, and employee mistakes.
So if you're looking for the peace of mind of knowing you aren't responsible for potential losses, request a Worth Insurance quote. Worth Insurance takes care of everything like legal fees and settlement costs, making the entire process less stressful.