Whether your company employs hundreds of consultants or you work out of a home office,
if you make your living providing IT services, you need Professional Liability insurance,
also known as Errors and Omissions insurance, Professional Liability insurance is
your most critical coverage. Professional Liability insurance protects you and your
business from potentially catastrophic litigation caused by charges of professional
negligence or failure to perform your professional duties. This might include errors
and omissions resulting in loss of client data, software or system failure, claims
of non-performance, or negligent oversell.
If you are a subcontractor working on a client site, your client may require that
you provide proof of General Liability and Professional Liability insurance.
Professional Liability insurance can be a selling point and may be described in
your contract in this way: “Contractor will maintain at its expense: Professional
Liability insurance in the amount of $1,000,000 including coverage for errors and
omissions caused by Contractor’s negligence in the performance of its duties under
this agreement.”
Why Do I Need Professional Liability Insurance?
Your business provides a highly specialized service that many of your clients don’t
fully understand. At the same time, the projects you work on are highly sensitive
and critically important to your client’s business. But you’re only human. If your
errors and omissions result in loss of client data or a software or system failure,
or if you fail to perform your duties, your client may be left unable to operate
its business. This risk opens you up to litigation. That’s where Professional Liability
insurance comes in.
For example, if your work damages a company’s client database, the cost to reconstruct
that database may exceed typical costs for replacing hardware and software. In fact,
some client companies have won extremely large settlements when subcontractors have
lost irreplaceable data. Professional Liability insurance would cover such costs,
within policy limits.
If you develop software as a professional independent contractor, copyright ownership
may be a murky issue, and much depends on the terms of your contract with your customer.
If you design Web sites and software, or you work with or “fix” previously purchased
software for clients, you are at risk for allegations of copyright infringement.
If you should be accused of infringement, a Professional Liability insurance policy
that includes intellectual property liability coverage would respond with defense
and settlement cost up to the policy limits.
You may think your General Liability insurance policy covers such instances, but
that’s not the case. General Liability Insurance covers claims of bodily injury
and property damage only and typically excludes coverage for claims related to the
delivery of professional services. The liability risk associated with your company’s
professional errors, omissions and negligence can be far greater than the bodily
injury and property damage risks covered by your General Liability policy.
Whether a claim is baseless or not, mounting a legal defense can bankrupt your company.
Professional Liability insurance protects your company and your future by responding
to professional liability claims and helping you keep your business operating as
potential lawsuits move through the courts. Without Professional Liability insurance,
your company could be financially overwhelmed.
Because laws and legal precedents governing the relatively new technology industry
are still being developed, computer professionals are often in legally uncharted
territory. That makes Professional Liability insurance even more critical to your
company’s long-term survival, as you may find yourself being sued tomorrow for actions
that are completely in line with today’s consulting expectations. Because professional
requirements and duties are largely undefined in legal terms, Professional Liability
insurance protects you against the unknown and the unforeseeable.
What To Look for in a Professional Liability Insurance Policy
Be sure your Professional Liability policy includes the following key features:
Coverage that includes legal defense costs. Professional Liability insurance
should pay for any resulting judgments against you, including court costs up to
your policy’s coverage limits.
Coverage that extends to both W2 employees and 1099 subcontractors. Professional
Liability insurance should protect your company from claims resulting from the work
done by 1099 subcontractors on your behalf. However, 1099 personnel may need their
own errors and omissions coverage if your Professional Liability insurance policy
does not defend them in the event they are sued separately or in addition to you.
Optional coverage for allegations of copyright infringement and intellectual property
infringement. As part of your Professional Liability insurance policy, intellectual
property infringement coverage protects you against claims alleging copyright infringement.
Software, systems or processes are some of the most commonly found “intellectual
properties.”
Personal injury coverage. Having personal injury coverage as part of your
Professional Liability insurance policy protects you against claims of libel, slander
and invasion of privacy.
Worldwide coverage if the suit is brought in the United States. Be sure to
ask if your Professional Liability insurance covers such litigation.
The information provided in this material is intended to be general and advisory
in nature and should not be considered legal advice. Certain coverage and features
and vary by state and may not be available to all insureds. All coverages are individually
underwritten
