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
