Identifying Hidden Policy Language in Your E&O Insurance

As a leader of a technology-based business, you know the protection of your clients and company from potential mistakes or breaches is vital. However, you may not be aware that the level of coverage provided by your Technology Errors & Omissions (E&O) Insurance policy can vary significantly depending on the language used by the author of your policy.

While it may be tempting to opt for the cheaper and quicker options from online insurance companies, it’s important to remember that these policies may not offer adequate protection and that, more often than not, “you get what you pay for”. 

Unfavorable policy language and hidden exclusions can expose your business to costly financial losses in the event of a service or product malfunction. In this article, we uncover the hidden dangers lurking in your Technology E&O Insurance policy and offer tips on how to avoid common language relating to sublimits, exclusions, and definitions.

What is Technology E&O Insurance?

First, let’s refresh; Technology E&O Insurance coverage provides protection from actual or alleged mistakes made within the professional scope of your services or products that caused harm to your customer or client. 

This could be due to an error in your software, an employee mistake, or a system breach that disrupts your customers’ access to critical business systems.

Who Needs Technology E&O Insurance?

If you provide any of the following services, you should consider purchasing Tech Errors & Omissions Insurance coverage:

  • Software development
  • System integration
  • Security monitoring
  • Technology consulting
  • Hardware or electronics manufacturing
  • Website design

Hidden Policy Language to Watch For

When reviewing your Errors & Omissions Insurance, several points are worth noting. The following are red flags to look out for: 

Cybercrime exclusion for acts of war or terrorism: This newer exclusion can be a headache and result in lengthy legal battles. It is not worth the potential nightmare of fighting a claim denied due to this exclusion. If you want to learn more about this topic, I have written a separate post on cybercrime exclusions.

Enterprise-wide coverage: Success in the Tech industry requires innovation and upgrades. If you release a new version or product during your policy period, it’s important to ensure your policy has an enterprise-wide definition. Without it, you could be sued for an error with the product/version and be denied coverage. With this definition, you have coverage for any new products or versions of products during the policy period. This coverage could be vital if your company frequently releases new products or versions!

Exclusions for delays: What if a piece of equipment necessary for your tech manufacturing operation goes down, and you cannot get the parts or repairs completed in time to fulfill an order? If your policy has an exclusion for delays, you will likely pay for the claim out of your pocket.

Combined cyber and tech E&O policy: There can be grey areas on whether Cyber and Tech E&O would respond to several claim scenarios. Having your Cyber and E&O on the same policy, with the same carrier, means you won’t have two carriers arguing over who pays the claim. This will avoid delays with your claims being paid to you and potentially drive up the costs of the claim through avoidable litigation. 

Claims-Made vs. Claims-Made and Reported

Understanding the type of policy from your Technology Errors & Omissions (E&O) Insurance is written on is an integral part of ensuring that your policy will provide coverage when you need it. The two main types of policy forms are claims-made and claims-made and reported.

  • Claims-made: Claims-made is preferable over the “and reported” form because of the timeline restrictions. Claims-made forms typically state coverage is afforded when the “claim” is reported within the policy period. In addition, many of these policies offer an extended reporting period of 60-90 days to help with “claims” occurring closer to the policy’s expiration.
  • Claims-made and reported: This is the same as claims-made but with a clearly defined period when the claim must be reported, usually within the policy period. If there is an incident or you get a records request in the last week of your policy and notify the insurance company after the expiration of your policy, the claim could be declined. Some claims-made and reported forms do include an extended reporting period; however, if you ever want to change carriers, some carriers will have hesitations or restrictions to writing an insured who is on a reported form. It is best to avoid claims made and reported policies.

Maximizing Technology Errors & Omissions Insurance

If you are in the tech industry, you likely have E&O exposures. If you have an E&O policy, you must be aware of what you are covered for and what situations could lead to your policy not covering vulnerabilities you have. 

It is wise to check your policy for potential gaps in coverage with a licensed agent who can guide you through the language. An agent who understands the insurance industry can assist in navigating the lengthy and complex policy language, which can be over 100 pages long.

When shopping for insurance, it is best to make your decision based on value rather than just price or how quick and easy it will be. Consider the extent of your coverage, the circumstances that would activate it, and the liabilities you would be responsible for in the event of an incident. Remember, you’re safeguarding the future of your business, so make your decision wisely!

Article By: Andy Clark

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