Errors and omissions (E&O) insurance, often referred to as professional liability insurance, protects companies in third-party or client lawsuits claiming inadequate work or service. From missed deadlines to miscalculated budgets, even the most diligent professionals can face costly lawsuits. That’s where E&O insurance steps in, acting as stop-gap protection for professionals in technology, medicine, law, consulting, and real estate.
"When evaluating technology vendors, Technology Errors and Omission insurance is a must-have. In the digital Wild West, even the best technology promises can turn into costly dust devils. That's why, at Walmart, we treat Tech E&O insurance like a prospector's gold pan: sifting out vendor hype from genuine guarantees. It's not just about covering our backsides; it's about protecting our bottom line. When you're betting billions on tech solutions, a little insurance goes a long way. It's the peace of mind to know that if a vendor's code caves in like a one-horse saloon, we've got the legal nuggets to rebuild without breaking the bank."
What does it cover?
E&O insurance includes multiple comprehensive parts to ensure coverage for when a third party alleges damage stemming from your product or service.
E&O insurance often covers the legal costs associated with client claims arising from errors or mistakes in company professional services.
Errors and omissions insurance can provide valuable protection against financial losses arising from investigations or proceedings initiated by licensing or regulatory bodies, or other governmental agencies, regarding alleged professional misconduct.
Client claims alleging professional misconduct can escalate into protracted legal proceedings, incurring significant income losses for businesses due to time spent at depositions and trials. Errors and omissions insurance can mitigate this financial risk by providing coverage for lost earnings during legal entanglements.
The scope of your errors and omissions policy may encompass claims stemming from professional negligence or errors by your workforce, including employees, independent contractors, and temporary personnel.
In the event your business enters into settlements to resolve claims stemming from client interactions, including errors or omissions related to services or advice provided, errors and omissions insurance may provide crucial financial coverage.
Examples of E&O Insurance Claims
A software development company, CloudCode, designs and implements a custom customer relationship management (CRM) system for a growing e-commerce retailer, Bloom Boutique. The contract stipulates specific features and functionalities, including seamless integration with existing accounting software and automated inventory management. After the CRM goes live, Bloom Boutique experiences numerous glitches and bugs. Integration with the accounting software proves faulty, leading to inaccurate financial data. Inventory management malfunctions cause overstocking and stockouts, impacting customer orders and profitability. Frustrated, Bloom Boutique alleges negligence and breach of contract against CloudCode, demanding compensation for financial losses and lost business.
Inhale Technologies, a rising star in the digital health realm, developed a sleek fitness app, ‘PulseRhythm,’ promising personalized exercise plans and real-time health monitoring. Their flagship feature, “HeartGuard,” boasted AI-powered abnormal heart rhythm detection. Enter Sarah, a dedicated user who religiously followed PulseRhythm’s workout schedules. One morning, during a vigorous cardio session, the app’s HeartGuard triggered, flashing a bright red alert for possible arrhythmia. Panicked, Sarah rushed to the hospital, only to be told her heart was in perfect rhythm. Confused and shaken, she contacted Inhale, alleging the false alarm caused unnecessary emotional distress and medical expenses.