Every business has unique risks that can seriously harm its operations if not properly addressed. As a business utilizing technology to produce and deliver products or services, it’s important to recognize and take precautions against risks that your commercial general liability (CGL) coverage doesn’t include. Technology professional liability coverage, also referred to as tech errors and omissions (E&O), is essential for companies using technology because it addresses the lack of protection in CGL policies, which typically do not cover claims of third-party financial harm.
Often there is some confusion about coverage, and why a technology operation would need general liability, cyber coverage and E&O insurance coverage. General liability covers bodily injury if a client or customer were to be injured on your property or if your operations or products were to cause physical damage. It does not cover claims related to technology that your business has created, however. Cyber also doesn’t cover the same risks as tech E&O. Cyber coverage protects your business from attacks and leaks, such as ransomware or cyber warfare, safeguarding sometimes critical data – like credit card or health information.
Kapnick Insurance: Family-Owned, Thriving and Evolving
Tech E&O, on the other hand, protects your business in the event that a third party suffers a financial loss due to your product or service not performing as it was intended or expected to, including the event of an error or omission committed by your company. Tech E&O coverage would apply in the following situations, for instance:
- A mistake was made and an error in the code of a website or program your company produced isn’t found before it is implemented. A third party depends on this product or service to operate its business and its operations are stalled due to the error, causing them a financial loss.
- A part your company produces is installed in a piece of equipment. After a short amount of time, the component simply stops working, causing the equipment to fail to work, but otherwise not damaging anything or hurting anyone. The third party that relies on this equipment for its business has to stop operations and suffers a financial loss.
- One of your employees recommends that a client adjust its network. The client follows the advice and its network crashes as a result, causing a time and financial loss for its operations.
Your general liability package would not cover you for such a suit, but a specific tech E&O policy, typically at a starting point of $1,000,000, would offer you the insurance to cover legal fees and a potential payout if you were found to be responsible.
As in all situations of insurance, it is important to discuss with your adviser the unique coverages and limits your business requires. Coverage will be dictated by how significant your exposures are and how valuable your company is–or could become.
Errors and omissions happen and can devastate a business, which is why it is important to have an insurance adviser who can help you fully understand how to mitigate your risks with the proper insurance coverages.
Tune in below for a podcast episode on E&O insurance:
