What Is Technology Errors and Omissions Insurance?

What Is Technology Errors and Omissions Insurance?

Technology has become an integral part of our lives. It is especially for businesses that are completely dependent on electronics, hardware, and software applications to keep their business alive in a competitive market. While technology makes things easier for a business, it can pose challenges for someone who supplies technology. You don’t want to make any mistakes or negligence that can result in technology errors. These errors can have a serious impact on the financial stability of your business, especially if the technology error gives an outsider access to your system.

Things get worse if the technology you have provided to others, whether it’s IT services or a software application, malfunctions. You can get sued for small mistakes. Sadly, your general liability insurance may not cover all kinds of financial losses that occur due to technical errors on your end. That’s why it’s important to consider Tech E&O (Technology, Errors, and Omissions Insurance) to prevent the risk of financial liability that you might have to experience should any technical issue occur.

 

What is Tech E&O Insurance?

Businesses providing IT services, hardware, software, a combination of both, and other similar technology-related services are always at the risk of getting blamed for any technical issue that occurs due to their service. Something as common as a system downtime for a few hours can result in your client losing a considerable amount of their revenue. They can sue you for that. That’s where Technology Errors and Omissions Insurance come into the picture.

Also read: Who Needs Errors and Omissions Insurance?

The insurance offers coverage for the blame that your customers make for supplying a wrong product, omission, and a negligence act. Some tech service providers buy the insurance as a safeguard, while others are supposed to get the insurance before they can start operations. Some state laws require certain businesses to have Tech E&O insurance to mitigate the risk of the loss they might bear due to tech-related errors.

 

What Does It Cover?

As you can see, most types of technology errors are covered by your tech E&O insurance, although it’s still advisable to go through the coverage thoroughly to ensure everything you offer is covered by the policy. The policy will cover legal fees, as well as, the financial cost of the damage that occurs to a third party in the following cases:

  • Software or hardware you provided to a client had bugs that erased their crucial data, which took months to record in the books.
  • Your hardware or software experiences a downtime for two days or more, refraining your client from receiving new orders during this period.
  • The cloud-based apps did not create a backup of the sensitive data, making it difficult for your client to restore it.
  • The website or app development services you offered did not meet their standard or were not according to what you promised.
  • Failure to provide the promised IT service within the predetermined deadline. Whether it’s your SEO team that failed to deliver the promised results or your SaaS company that faced an outage, a client can sue you for the lost revenue for not providing the services as promised.
  • Third-party cyber liability. If you are supposed to provide security services to your client, you are responsible for ensuring that their system and data remain in optimal condition and are inaccessible to any outsider. If you fail to provide the level of security you promised and the client experiences a cyber security issue, they will sue you for the loss they incur from the breach. The insurance will cover the legal fee and the cost of fixing the reputational damage.

The policy is also valid if the customer files a complaint against you for developing a website that looks like your competitors’ website. Likewise, the insurance covers the cost of selling software or hardware product that is not compatible with the client’s outdated system and leads to a crash when installed.

Tech E&O insurance also comes to your rescue when you are accused of breach of contract. Though nobody does that purposely, it can happen. Let’s say you work as a mobile app developer for an international client and took the payment in advance for the job. You left the work in the middle and now the company has to hire someone else to finish your job.

They didn’t only lose money, but the time to complete app development. There’s a good chance they will sue you for breaking the contract without delivering the required services. In that case, your Tech E&O insurance can help you recoup the financial amount that your client demands.

Also read: Malpractice Insurance: Definition, Types, Importance

It will also pay for the court fee, judgment, settlement, and other charges.

 

How Much Does the Tech E&O Insurance Cost?

IT service providers pay around $60 a month for technology errors and omissions insurance, although the premium varies depending on your risk factor, the size of your business, and the level of services you offer. A few common factors that are considered when deciding on a suitable insurance policy include the IT services you offer, your business size and annual income, employees in your firm, business equipment, and so on. In addition to these, your history of lawsuits, coverage limits, and location are a few factors that determine the insurance cost.

Tech E&O covers nearly most of the tech-related errors and financial issues that come up because of technical negligence. Still, it doesn’t offer comprehensive coverage, which is why it’s advisable to discuss your goals with an insurance agent to understand the coverage before buying the policy. It’s also advisable to buy additional insurance policies to extend your coverage. A few common insurance policies you should purchase in addition to technology errors and omissions plans are:

  • General liability insurance
  • Cyber liability insurance
  • Worker’s compensation insurance
  • Commercial auto insurance

If you are in the IT business and offer technical services to your staff regularly, it’s worth buying a tech E&O insurance policy to protect your business from financial loss that occurs because of third-party claims.