Technology Errors and Omissions Coverage (Tech E&O) is designed to cover the financial loss to a company’s customer as a result of an error or omission in the service or product supplied to the customer.
Tech E&O is a subset of Miscellaneous Professional Liability specifically tailored to address the unique exposures presented by technology companies. It is likely that a technology provider will, by contract, need to supply evidence of E&O coverage.
It is critical that everyone involved in the insurance purchase decision understand what the company actually does. The best method to truly understand a company is to “follow the money”. How is the company generating revenue? For instance, an outsourced data center may lease or sell the equipment itself, but the margins are very small on this service. The bulk of revenue generated is from making that equipment available for their customers as an out-sourced network, and so should be the focus of the E&O coverage.
A distinction should be made between the makers and manipulators of technology and the end users. Nearly all business use a network, but Tech E&O is not appropriate unless the company is generating revenue directly from that network (i.e, digital payment processors, network supply services, etc.)
Network Security and Privacy (Cyber) and Technology E&O are often confused. One of the reasons is that many Cyber policies originated in the Technology underwriting units within insurance carriers. Technology companies were also the first to see the need for and buy Cyber coverage. The cyber profile for a tech company depends on the same factors as any other company and can range from minimal exposure of a manufacturer to the immense exposure of online medical software systems. The driver of the exposure is the reliance on the network and also the amount of personal identifiable information and other sensitive data retained on the network.
Technology E&O is “clash” coverage, meaning that losses are not expected, but when they do occur they can be material. This is in contrast to other coverages such as automobile or workers’ compensation, which have frequent minor claims, in addition to an occasional severe claim.
Ultimately, most technology companies (except for hardware manufacturers) work under a contract with a Service Level Agreement (SLA). SLAs outline the services or products to be delivered, but also may contain limitations of liability which greatly reduce the tech company’s exposure. However, in many lawsuits brought against tech firms, courts will pierce the SLA and award damages without regard to the SLA’s language. For this reason, many preferred E&O policies do not have a Breach of Contract exclusion.
There are also other form coverages differences that should be considered. One of the most important is an exclusion for “delay”. Many E&O suits arise from the tech company failing to supply a service or product on time. If a delay exclusion is included in the policy, coverage may be compromised.
Some forms include advertising (infringement of copyright, title, etc.) and personal injury coverage (libel, slander, product or service disparagement, etc.), because many General Liability policies for tech companies include an exclusion for professional liability. (Professional exclusions should be eliminated from the firm’s GL policy and umbrella coverage wherever possible).
Disputes between tech providers and their clients can costly. All tech companies should purchase Tech E&O as a financial backstop in such cases.
INSUREtrust specializes in Tech E&O and Cyber coverage, and is the leading tech products broker for numerous carriers.
Sample Technology E&O claims include:
• A firm may have a suit arise because the customer is dissatisfied with the performance of the product or the customer’s expectations were higher than the capabilities of the product.
• Client misuse of a product can be the basis for a claim. Your product may not be defective, yet you will have to defend yourself to demonstrate this.
You may believe having a General Liability policy will provide you and your company with enough protection. Please review our Technology E&O resources to discover the differences between a Technology E&O policy and a General Liability policy.
We have an extensive list of Policies and Applications for you to choose from, or you can also contact us to let us assist you in finding the correct application for your situation.