Professional Liability insurance (AKA Errors & Omissions Liability insurance) is perhaps the most important policy for the average IT company.
The Tech Professional Liability policy protects against certain allegations of negligent or wrongful acts, errors, or omissions or failure of your technology services to perform as intended.
Examples of potentially covered claims include:
- A problem with software the results in a client losing account receivable records and related inability to collect what is owed.
- Hardware failure that results in inability for client to accept online e commerce orders for two days.
- Custom code does not operate as quickly as promised.
- Client’s system is hacked resulting in release of confidential information.
To follow is a brief summary of the basic coverage form for one of the leading insurance carriers for Tech Professional Liability (Errors & Omissions):
The company will pay on behalf of the insured any loss excess of the deductible not exceeding the limit of liability shown on the policy… for Wrongful Acts of an insured.
Wrongful act means any actual or alleged error, omission, neglect or breach of duty, Personal Injury, unintentional introduction of a malicious code or unintentional failure to prevent unauthorized access to or use of any electronic system or program of the third-party…
The definition of Wrongful Acts includes but is not limited to providing Professional Services for a fee solely in the conduct of Computer Technology Services and/or Internet Services.
Computer Technology Services means information technology services performed by any insured for others for a fee, including but not limited to computer consulting, systems analysis, installation, programming, data processing, system integration, software development and design, disaster he recovery, record retrieval, management and repair or maintenance of computer products, networker systems and education and training services related to the above.
Internet Services means the services performed on the Internet by an insured for others for a fee including constructing or maintaining a website, consulting on the function in use of Internet technology, and the integration of electronic information and business processes within a website.
Personal Injury means a claim alleging wrongful entry, wrongful eviction, wrongful detention, false arrest, false imprisonment, libel, slander or defamation, advertising injury or violation of any right of privacy.
Insured means a business entity designated in the policy as the named insured including an individual with respect to the conduct of a business of which the individual is the sole owner; a partnership or joint venture and respective partners; a limited liability company and respective managers; and organization other than a partnership, joint venture, or limited liability company (i.e. corporation) and respective executive officers and directors; former or retired partners, members, or individuals employed by the named insured; and the volunteer workers, employees, or managers while operating within the scope of their duties; and any independent contractor but only for professional services rendered on the half of the named insured.
Notable Exclusions from coverage: conduct of insured or at an insured’s direction that is criminal, fraudulent, dishonest, or with the intent to cause a loss; any insured gaining any profit, remuneration or advantage to which any insured was not legally entitled; any claim by or on behalf of any person or entity within the definition of insured against any other person or entity included within the definition of insured; any actual or alleged bodily injury, sickness, humiliation, mental anguish, emotional distress, assault, battery, disease, death or loss of consortium of any person or damage to or destruction of any tangible property, including any resulting loss of use; non-monetary relief; failure to affect or maintain any insurance or bond; claims under ERISA; violation of any securities, antitrust, restraint of trade, unfair trade practices, consumer protection, or similar law; actual or alleged liability of any insured under any express contract or agreement…; any prior or pending litigation, administrative or regulatory proceeding, claim, demand, arbitration, decree, or judgment of which any insured had written notice before the effective date of this policy; any actual or alleged: refusal to employ, termination of employment, employment related coercion, demotion, evaluation, reassignment, discipline, workplace conditions, false imprisonment, defamation, harassment, humiliation, or discrimination of employment… or sexual harassment by any insured…; pollution; performance or failure to perform professional services for any insured, owned or controlled entity, person who owns or controls an entity within the definition of insured…; infringement of any patent, copyright, trademark, trade name or trade dress, or wrongful appropriation, use or disclosure of trade secrets or confidential or proprietary information (buyback available); product provided by any insured which prior to its installation, testing and final acceptance, fails to perform the function of serve the purpose intended; cost guarantee your estimates of probable costs or cost estimates being exceeded; fee dispute or suit for fees initiated by any insured against any past or current client of the insured; rendering or failure to render investment, insurance counseling advice…; or malfunction or defect of any hardware, equipment or component, sales hardware or non-customized commercially available computer software products.
Coverage Territory: policy only applies to wrongful acts committed by and suits brought against the insured in the United States of America or its territories, possessions, Puerto Rico or Canada.
Full Prior Acts Coverage: coverage for full prior acts can be added for an additional charge of 25%. Prior acts include those unknown wrongful acts that may have occurred prior to the effective date of the first policy.
Intellectual Property: coverage for intellectual property infringements may be addedfor an additional premium charge.
This endorsement modifies the insuring agreement as follows: The company will pay on behalf of the insured any loss excess of the deductible not exceeding the limit of liability… for Wrongful Acts of an insured or from an Intellectual Property Claim arising out of the Wrongful Act of insured.
Intellectual Property Claim means a claim alleging infringement of copyright, title, slogan, logo, trademark, trade name, or trade dress arising out of the activities committed or attempted in the performance of Professional Services by an insured.
As a result of the intellectual property endorsement, exclusion N. under the Professional Liability policy is amended as follows: infringement of any patent, or wrongful appropriation, use or disclosure of trade secrets or confidential or proprietary information.
Data Breach Expense & Regulatory Defense Coverage: for additional premium charge of 15%, this coverage may be added with a sub limit of $250,000. Higher limits may be available and underwriting approval is required. This coverage protects the insured against data breaches of client confidential information resulting in civil liability and regulatory actions by state and federal administrative agencies. Wrongful acts which result in client data breaches are automatically covered under the basic Professional Liability (Errors & Omissions) policy form.
Common Contractual Requirements:
Additional Insured – Additional premium of $100 for Blanket Additional Insured Endorsement. Note that the Additional Insured is not subject to the insured vs insured exclusion.
Note: The Policy Language Above Has Been Paraphrased And Is For Illustrative Purposes Only. You Must Refer To The Actual Policy Form For A Complete Description Of All Coverages, Definitions, Conditions, And Exclusions.