Tech E&O Insurance 101

This article is a Q&A primer on technology errors and omissions insurance, or “Tech E&O.” A standard commercial general liability policy does not cover claims for programming errors or disputes over contract performance because tech claims do not fall under the definition of tangible property. A CGL policy can, however, cover some product failure if the failure causes damage to tangible property.

Tech E&O insurance covers two basic risks. The first is financial loss of a third party from failure of the insured’s product to perform as intended. The second is financial loss of a third party arising from an act, error, or omission committed in the course of the insured’s performance of services. The policy typically covers defense costs and judgments up to the policy’s limits. There is usually coverage for liability arising out of the failure of the insured’s technology products, including hardware and software.

Tech E&O policies are typically “claims made and reported” with an “as-soon- as-practicable” provision. Although tech E&O claims are in their infancy and case law is limited, traditional coverage issues apply. Is an insured obligated to disclose prior claims or lawsuits in the application form? What constitutes prior knowledge? Does a known weakness in the software or hardware constitute knowledge of circumstances that could lead to a claim? When does a company’s risk manager or chief technology officer need to report a potential claim? How soon does a company need to report to the carrier?