Professional Liability Insurance (E & O) for the Technology Industry
Professional liability insurance is also often referred to as errors & omissions or E&O This type of insurance covers damages caused by mistakes (errors) made by a professional or damages caused by something a professional failed to do (omissions). If you hold yourself out as an expert or professional in your particular field, you can be held responsible for your work, your advice or counsel. Regardless of what kind of Technology work you perform, customers can claim that something you did on their behalf was done incorrectly, and that this error cost them money or caused them harm in some way
Here are examples.
You and/or your company are hired to create a computer system or network for a customer, where the system or network is supposed to be able to perform certain functions, like process various transactions being called in from all around the country, or analyze data from sales information to draw certain conclusions on which the customer can act when implementing marketing strategies, strategic directions, etc. However, once you finish putting the system or network in place, it turns out that it just doesn’t work. It doesn’t draw any conclusions from the data analysis. It can’t process the transactions like it was supposed to, or not fast enough in order to make the system viable. Your customer just paid for something useless, and is suffering financial loss (lost revenue, increased expenses, etc.) because it doesn’t have use of the system that it fully expected to have in place. This example is one of an error or omission.
Or
You and/or your company are asked to program software for a customer who makes parts for computers. The parts are found to not work properly when placed in the computer. Your customer is then sued for damages because of the computer company’s inability to fill its orders in a timely manner thus losing sales. You are then named in the law suit because your program was involved with the parts that failed to work properly.
Even if you assume that you or your firm would never make an "error" or "omission", you simply cannot ignore the fact that anyone can allege virtually anything - and drag you into court. Maybe it has nothing whatsoever to do with you, but another firm gets sued by a client, and they then cross-complain against anyone and everyone who was even remotely involved in the disputed work. Even if it turns out that you have done nothing wrong, you could still be faced with thousands of dollars in defense costs. Defense costs are normally included in E & O insurance.
Tips on Purchasing
A good broker should be able to explain to you the terms of any coverage proposed. He or she should be able to conduct meaningful and competent negotiations on your behalf with an insurance company underwriter. In addition, due to the specialty nature of technology coverage there are only a limited number of insurance companies that specialize in the market. When you have a competent broker it is often counter-productive to submit multiple applications to different brokers. While you may think that this encourages "competition" in reality it usually results in a muddle of confusing choices. Most insurance companies will only release a quote to one broker. Should multiple submissions arrive, the first submission is generally recognized by the underwriter, and then all the other brokers are "blocked." In addition, an experienced insurance broker can negotiate with the underwriter to add, delete or modify the terms of the policy and thus alter the price.
Note
If you have any specific questions of a legal nature, please be sure to consult with an attorney. If your attorney has questions about insurance issues, please ask him or her to call.
