What Is Tech E&O Coverage and Who Does It Cover?

When automobile autopilots cause a fatal crash, facial recognition software leads to the arrest of the wrong person, or an AI-led recruiting tool shows bias against women, those held liable usually end up having to dole out big bucks to the injured parties. Instances like these are just some of the reasons businesses need Tech E&O (errors and omissions) coverage. 

The tech industry represents a whopping 9% of the national economy, with an estimated economic output of $1.8 trillion. This industry is also growing at a rapid rate, with a 5% year-over-year increase in tech business establishments in 2022. 

In such a crowded and competitive space, companies need to evolve as quickly as they grow. Every new innovation brings its own set of risks, which is why it’s so crucial for tech companies to carry the right insurance coverage and for agents to work with experienced brokers who understand those risks. 

Who Needs Tech E&O Coverage?

Tech E&O insurance covers companies that provide tech-based products and services. You should consider recommending tech E&O coverage for businesses such as:

  • Software companies.
  • Data storage providers.
  • Website design firms.
  • IT contractors.
  • SaaS providers.
  • E-commerce businesses.
  • Telecommunications companies.
  • IT consulting firms.

Top tech companies like Apple, Microsoft, Alphabet (Google), Amazon, and Tesla are well-known names around nearly any dinner table. Tech E&O insurance offers valuable protections that can save these powerful tech businesses a significant amount of money if faced with a lawsuit.

What Does Tech E&O Coverage Protect Against?

Tech E&O coverage pays for the legal expenses and indemnity payments associated with lawsuits leveraged against technology companies for failed products or services. This may include situations like:

  • Improper recommendations.
  • Missed deadlines for development, delivery, or other milestones.
  • Undelivered or incomplete products or services.
  • Undesirable website designs.
  • Project errors or oversights.
  • Budgetary overruns.
  • Software failures.
  • Equipment failures.
  • Cloud-based service errors.
  • Network security breaches.
  • Breaches of contract.

Even the most diligent companies can fall victim to these types of errors and omissions. Though many of the situations covered by this insurance are nearly impossible to avoid, they can cause significant financial losses for tech clients. For example, if a website design inadvertently mimics some key elements of a competitor’s website, that business can suffer from unwanted publicity. Well-meaning advice or recommendations that backfire can lead an unhappy client to file a lawsuit despite the company’s best intentions.

Tech E&O coverage ensures that the client’s finances are well-protected against the many unexpected claims and unforeseen circumstances that may cause trouble for a business in the tech industry. With this coverage in place, tech companies can safely satisfy the upset client with adequate compensation without taking a major financial hit, thus protecting their name and reputation as much as possible even when a problem occurs.

What Does Tech E&O Coverage Pay For?

With the proper tech E&O coverage in place, companies typically enjoy protection against expenses, including:

  • Court-ordered legal judgments.
  • Court costs.
  • Court fees.
  • Attorneys’ fees.
  • Settlements, judgments, and fines.
  • Crisis management expenses.
  • Costs associated with an interruption of business.

These costs are often massive. In a 2014 case, software developer Sparta Consulting, Inc. was ordered to pay over $9,091,000 to the online vehicle auction company Copart, Inc. for delivering an unfinished system lacking essential functionality.

What Is Cyber Liability Coverage?

Cyber liability coverage offers a second layer of protection for tech companies. Clients purchasing tech E&O coverage are often a good fit for cyber liability coverage as well. Cyber liability coverage provides extra protection against data breaches. The average cost for a data breach is $4.35 million dollars as of 2022. 

While tech E&O coverage typically protects a company against a security breach that involves access to that company’s devices or systems, E&O coverage doesn’t usually apply to data breaches where criminals gain access to customers’ personal data. These two types of breaches nearly always occur together, requiring both forms of coverage to handle all the associated costs.

What Is Media Liability and Intellectual Property Coverage?

Media liability and intellectual property infringement are other key considerations for tech companies. Insurance agents may advise rolling this type of technology insurance coverage into the client’s E&O coverage as an add-on. Media liability and intellectual property insurance protect against:

  • False advertising.
  • Slander.
  • Invasion of privacy.
  • Libel.
  • Defamation.
  • Copyright infringement.
  • Intellectual property infringement.
  • Errors and omissions.

If a tech company works with music, multimedia, advertising, or publishing, media liability and intellectual property infringement coverage may offer much-needed support for the additional complications associated with these types of media use.

Tech startups can give potential investors added confidence in their professional acumen by putting this critical coverage in place from day one. Businesses branching out into more tech-based services should add this coverage immediately to make sure they’re safe from the many failures and errors inherent in technology. Working with the right broker, like our team members at Quaker, will help you make sure you have the proper coverage. If you’re interested in learning more about technology insurance, contact our team at Quaker Special Risk.

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