The Importance of Technology Errors and Omissions Insurance for IT Professionals

When technology fails, businesses may lose millions. As an IT professional, you know that your clients depend on your services for critical business operations. If anything goes wrong, you could face a major lawsuit. Without technology errors and omissions insurance for IT professionals, you may face those lawsuits on your own.

Lessons from the CrowdStrike Outage

If you work in the IT sector, you’re probably familiar with the CrowdStrike outage. Even if you DON’T work in IT, you likely heard about it – it was that disruptive.

TechTarget says it might have been the largest IT outage in history. It happened on July 19, 2024, when a faulty software update caused clients around the world to be hit with the Windows system blue screen of death. Operations came to a halt in many businesses while CrowdStrike scrambled to correct the problem.

Delta Air Lines was among the impacted clients. According to Reuters, the airline had to cancel 7,000 flights due to the outage, resulting in lost revenue of $550 million. This kicked off a legal battle. In May, a judge ruled that Delta could move forward with a lawsuit against CrowdStrike accusing the IT company of gross negligence in pushing a defective update.

This sort of disaster is every IT professional’s worst nightmare. One small mistake may be enough to trigger major losses for your clients. Even if clients are unlikely to have a billion dollars like Delta did, the stakes may be incredibly high – and that may trigger massive lawsuits.

The Role of Technology Errors and Omissions Insurance

Technology errors and omissions (E&O) insurance provides coverage for IT companies facing lawsuits over professional services that resulted in financial losses for clients.

Coverage will depend on your policy terms, but common claims may involve:

• A client may claim that your negligence led to a data breach, system failure, or loss of client data, leading to financial loss.
• Breach of Contract. A client may sue you over missed deadlines that resulted in financial loss.
• A client may claim that you misrepresented the scope or costs of your services, requiring them to pay more than anticipated.
• Copyright Infringement. Some tech E&O policies also cover lawsuits alleging software copyright infringement.

In the event of a covered lawsuit, your tech E&O policy will help cover your legal costs, such as defense and settlements or awards, up to your policy limits and per the terms in your policy. This coverage is important because other types of insurance typically don’t cover lawsuits involving third-party financial losses due to professional services.

Do You Need Tech E&O Insurance?

If your company provides IT services, you could probably benefit from tech E&O coverage. Consider the following scenarios:

• eCommerce Web design services. A client requests a website on a tight schedule, and you scramble to complete it on time. You succeed – but the website has glitches that result in lost sales. The client claims these errors resulted in significant lost revenue and files a lawsuit.
• Cybersecurity services. Although your services are successful in preventing many cyberattacks, one of your clients is hit by ransomware. The client sues you for misrepresentation and negligence.
• Cloud hosting services. You experience a cyberattack that disrupts your services. Although no data is permanently lost, some of your clients are temporarily unable to access their files. Some of your clients claim financial losses as a result and sue your company.

These are just a few examples of how issues may lead to lawsuits. If you provide IT services, including software development, website design, cloud hosting, or cybersecurity, make sure you have protection against litigation.

What Would an Uncovered Lawsuit Mean for Your Company?

No matter how carefully you work, there’s always a chance that your clients will be unhappy with the results. If your clients say they have lost money as a result, a lawsuit is likely.

• If your company had to cover defense costs, settlements, and awards, what would it do to your bottom line? One big lawsuit has the potential to bankrupt a company.
• How would the lawsuit affect your reputation? Having adequate insurance coverage in place can help shield your reputation by supporting a strong defense and/or by making your client whole again.

Do you have the technology errors and omissions coverage you need to protect your company? Heffernan Insurance Brokers offers insurance for technology companies – from pre-IPO and venture-funded companies to global corporations and enterprises. We can help you manage your risks as you scale your company. Learn more.