A Definitive Guide to Technology Errors & Omissions Insurance

Key Takeaways

Technology Errors & Omissions (E&O) insurance is a specialized form of professional liability coverage designed for tech companies. It protects your business if a client claims your product or service failed and caused them financial harm.
This coverage is distinct from cyber liability insurance. Tech E&O responds to your professional mistakes (e.g., a software bug), while cyber liability responds to security incidents (e.g., a data breach). Many modern policies blend both coverages.
The financial stakes are enormous. The cost of poor software quality in the U.S. is estimated at $2.41 trillion annually, and the average data breach now costs $4.88 million. These macro-economic costs often become direct legal liabilities for tech providers.
Common claims that trigger technology E&O policies include breach of contract, negligence, missed deadlines, software bugs, and intellectual property infringement. The policy covers legal defense costs, settlements, and judgments.
Regulatory scrutiny from agencies like the Federal Trade Commission (FTC) is increasing. A robust technology E&O policy should include coverage for regulatory defense and penalties.
Adopting industry best practices, such as the NIST Cybersecurity Framework, is not just good for security, it's a critical legal defense strategy that can demonstrate you met the expected "standard of care."

The High Stakes of Digital Dependency: Why Tech Failures Are Business Failures

In the modern economy, technology is no longer just a tool; it is the central nervous system of commerce. For your clients, your software, hardware, or IT services are the very foundation upon which they build their operations, serve their customers, and generate revenue. But this deep dependency creates an equally deep vulnerability. When your technology fails, it's not a minor inconvenience, it's a critical business failure that can trigger a cascade of financial and legal consequences.

The scale of this problem is staggering. According to a 2022 report from the Consortium for Information & Software Quality (CISQ), the cost of poor software quality in the United States has ballooned to an estimated $2.41 trillion per year. This isn't a hypothetical number; it represents the real-world costs of operational software failures, unsuccessful projects, and the drag of poorly built legacy systems. Compounding this issue is the concept of "Technical Debt, "the implied cost of rework from taking shortcuts during development, which has accumulated to an estimated

$1.52 trillion in the U.S. alone.

These are not isolated incidents. For many businesses, critical failures are becoming routine. Some research indicates that 40% of companies experience at least one critical software failure every quarter. In a competitive landscape that demands rapid development and faster time-to-market, the pressure to cut corners can lead to an increase in oversights and mistakes, making errors almost inevitable.

The Ripple Effect of a Single Bug

A small error in code can have an exponentially growing financial impact. This is often described by the "1-10-100 rule": a bug that costs $1 to identify and fix during the design phase will cost $10 to fix during development, and $100 or more to fix after the product has been released to a client.

These post-release costs go far beyond a developer's salary. They include:

Operational Losses: A 2023 study found that a single hour of enterprise system downtime costs a business $300,000 on average.
Legal and Compensation Costs: For every $1 spent fixing a bug after launch, companies can incur an additional $30 in secondary costs like customer compensation and legal fees.
Regulatory Fines: Data breaches that result from software vulnerabilities can lead to massive regulatory fines. Under GDPR, for example, fines can reach up to 4% of a company's global revenue.

Furthermore, software vulnerabilities are a primary gateway for cybercriminals. The 2024 IBM Cost of a Data Breach Report found that the global average cost of a data breach has climbed to $4.88 million. A significant portion of these breaches are caused by IT failures, including software bugs and system misconfigurations, which accounted for

26% of breaches in the industrial sector. This creates a direct and costly link between a simple "tech error" and a catastrophic "cyber liability" event.

This economic reality has created a new legal battleground. When your technology fails and causes a client to lose money, that client is absorbing a piece of that $2.41 trillion cost. Through lawsuits alleging breach of contract or negligence, they will try to transfer that cost back to you, the technology provider. This is the fundamental risk that technology errors & omissions insurance is designed to address. It is a financial tool that transforms an unpredictable, potentially business-ending legal liability into a predictable, manageable operating expense in the form of an insurance premium.

Deconstructing Technology E&O Insurance: Your Financial Backstop

Technology errors & omissions insurance, often shortened to technology E&O, is a specialized type of professional liability insurance created specifically for the risks inherent in the tech industry. Its core purpose is to protect your business if a client claims that a mistake, oversight, or act of negligence related to your technology products or services caused them to suffer a financial loss.

Think of it as malpractice insurance for technology professionals. Just as a doctor needs insurance for medical errors, a tech company needs insurance for technology errors.

Who Needs Technology E&O Insurance?

If your business provides a technology product or service that other companies rely on to function, you have a technology E&O exposure. This includes a wide range of businesses:

Software as a Service (SaaS) Providers: Your platform is integral to your clients' daily operations. An outage or data error can bring their business to a halt.
Software Developers and Programmers: Bugs in your custom code can cause significant financial or operational damage to your clients.
IT Consultants and Managed Service Providers (MSPs): Your advice, network configurations, and security management directly impact your clients' performance and security posture.
Website and App Developers: A poorly functioning website or a buggy mobile app can lead to lost sales and reputational harm for your clients.
Hardware Manufacturers and Electronics Designers: A flaw in your hardware can cause system failures for the businesses that integrate your components.
Cloud Service Providers: Your infrastructure is the backbone for countless other businesses. Any failure can have widespread consequences.

What Technology E&O Insurance Covers

A technology E&O policy is designed to pay for the costs that arise from a covered claim. This financial protection is crucial, as even a baseless lawsuit can force you to spend tens or hundreds of thousands of dollars in legal fees to defend your company.

Coverage typically includes:

Legal Defense Costs: This is one of the most valuable parts of the policy. It covers attorney fees, court costs, and fees for expert witnesses required to defend your case.
Settlements and Judgments: If you reach a settlement with the client or if a court orders you to pay damages, the policy will cover those costs, up to the policy limit.

The policy is triggered by claims alleging a "wrongful act" in the performance of your technology services. These acts commonly include:

Errors and Omissions: A bug in your code, a misconfiguration during a network setup, or forgetting to implement a feature the client requested in the project scope.
Negligence: A failure to use a reasonable level of professional care, which results in a financial loss for your client.
Breach of Contract: Your failure to deliver products or services as promised in a client contract or Service Level Agreement (SLA). This is a very common claim trigger, often related to missed deadlines or unmet performance metrics.
Breach of Warranty: Your product fails to perform as you advertised or guaranteed it would.
Misrepresentation: You made a false or misleading statement about your product's capabilities that a client relied upon when signing a contract, only to find it wasn't true.

Essentially, this insurance functions as a financial backstop for the promises you make in your client contracts. An SLA that guarantees 99.9% uptime is a contractual promise. When a server outage, a "tech error," causes you to break that promise, the legal consequence is a breach of contract. Technology E&O insurance is the mechanism that manages the financial fallout from that broken promise, acknowledging that in the complex world of technology, perfect performance is an aspiration, not a guarantee.

What Technology E&O Insurance Typically Excludes

It is just as important to understand what a technology E&O policy does not cover. It is not a catch-all policy. Common exclusions include:

Intentional Wrongdoing: Deliberate fraud or malicious acts are not covered.
Bodily Injury and Property Damage: These claims are typically covered by a Commercial General Liability insurance policy.
Criminal Acts: The policy will not pay to defend you against criminal charges.
Employment Disputes: Claims like wrongful termination or discrimination are covered by a separate Employment Practices Liability (EPL) policy.

Understanding the "Claims-Made" Policy Structure

Most technology E&O policies are written on a "claims-made" basis. This is a critical concept to understand. It means the policy that responds to a claim is the one you have in effect at the time the claim is filed against you, not the policy you had when the error actually occurred.

For example, if you made a coding error in 2023 but the client only discovers the problem and sues you in 2025, it is your 2025 policy that must cover the claim. This is why it is essential to maintain continuous, uninterrupted coverage. Any gap in coverage could leave you exposed for all the work you have ever done in the past. Your policy will also have a "retroactive date," which is typically the date you first purchased the coverage. The policy will not cover any work you performed before this date.

Tech E&O vs. Cyber Liability: A Critical Distinction

One of the most common points of confusion for business leaders is the difference between technology E&O insurance and cyber liability insurance. While they both deal with technology-related risks, they are designed to respond to different types of events. Getting this distinction right is crucial to ensuring your business doesn't have a major gap in its risk management program.

Here is the core difference, put simply:

Technology E&O Insurance responds when your product or service fails, and that failure causes a financial loss for your client. The trigger is a professional mistake or negligence on your part.
Cyber Liability Insurance responds when your company experiences a data breach or cyberattack. The trigger is a security failure, often caused by a malicious third party.

Let's look at a few scenarios to make this clear:

Scenario 1: A Classic Technology E&O Claim Your company develops and sells project management software. You release an update with a hidden bug that corrupts a client's project data, causing them to miss a critical deadline with their own customer and lose a major contract. The client sues you for the lost revenue, claiming your faulty software was the cause. This is a technology E&O claim. Your professional service (the software) failed to perform as intended, resulting in a financial loss for your client.
Scenario 2: A Classic First-Party Cyber Liability Claim An employee at your company clicks on a phishing email, which allows a hacker to deploy ransomware on your internal network. Your files are encrypted, your operations are shut down, and the hacker demands a payment. You have to hire forensic investigators to determine the scope of the attack, pay for data restoration from backups, and you lose income for every day your business is offline. This is a first-party cyber liability claim. It covers the direct costs your own business incurs as a result of a cyberattack.
Scenario 3: A Classic Third-Party Cyber Liability Claim You are an IT security consultant hired to manage a client's network. You fail to properly configure their firewall, leaving a port open. A hacker exploits this vulnerability, breaks into your client's network, and steals thousands of their customers' credit card numbers. Your client is now facing regulatory fines, the cost of notifying their customers, and lawsuits from those customers. They, in turn, sue you for professional negligence in failing to secure their network. This is a third-party cyber liability claim. It covers your liability to others (your client) for a security failure.

The Convergence: Blended "Tech E&O" Policies

The lines between a service failure and a security failure can be blurry. Was a data breach at a client's site caused by a bug in your software (a tech error) or by your failure to secure their network (a cyber negligence)?

To address this ambiguity, the insurance market has evolved. Today, most policies sold to technology companies are blended "Tech E&O" policies. These policies combine technology E&O coverage (for product/service failures) with third-party cyber liability coverage (for security failures) into a single, integrated package.This provides broader protection and helps avoid disputes over which policy should respond to a claim. The goal of a blended policy is to cover your liability to a client for financial harm, whether the lawsuit frames your mistake as a "buggy product" or "negligent security."

The bullet points below provide a clear, at-a-glance comparison of these two fundamental coverages.

Technology E&O Insurance

Primary Trigger: A failure of your technology product or professional service.
Core Focus: Your client's financial loss due to your professional negligence, error, or breach of contract.
Example Claim: A bug in your SaaS platform causes a client to lose sales revenue, and they sue you.
Who is Harmed? Primarily your client, who then sues you for their economic damages.

Cyber Liability Insurance

Primary Trigger: A data breach or cyberattack.
Core Focus: The costs (first-party and third-party) resulting from a security incident.
Example Claim: Your network is hacked, and you must pay for credit monitoring for affected customers.
Who is Harmed? Primarily your company (first-party) or your client's customers whose data was breached (third-party).

Anatomy of a Claim: Real-World Scenarios and Financial Fallout

To truly understand the value of technology E&O insurance, it's helpful to move beyond definitions and look at how claims play out in the real world. A simple, unintentional mistake can quickly escalate into a lawsuit that threatens the financial stability of your company. Here are five detailed scenarios that illustrate common technology E&O claims and how the insurance policy is designed to respond.

Case Study 1: The SaaS Platform Outage

The Scenario: A SaaS company that provides an e-commerce platform for small businesses pushes out a new software update. Unbeknownst to their development team, the update contains a critical flaw that causes widespread instability. For 48 hours over a peak holiday shopping weekend, their clients' online stores are inaccessible.
The Allegation: One of their largest clients, an online retailer, calculates they lost over $500,000 in sales during the outage. They file a lawsuit against the SaaS company, alleging breach of contract (citing the 99.9% uptime guarantee in their SLA) and professional negligence.
The Financial Fallout: The SaaS company is now facing a $500,000 demand, plus the prospect of a long and expensive legal battle. Their legal team estimates that defending the case through trial could cost upwards of $150,000, even if they ultimately win.
How Technology E&O Responds: The SaaS company notifies their insurance carrier. The policy immediately begins paying for the legal defense, hiring a law firm that specializes in technology disputes. After months of legal maneuvering, the parties agree to a settlement of $300,000. The technology E&O policy pays for both the $100,000 in legal fees and the $300,000 settlement, saving the company from a devastating financial blow.

Case Study 2: The Botched Data Migration

The Scenario: An IT consulting firm is hired by a mid-sized accounting firm to migrate 10 years of sensitive client financial data from an old, on-premise server to a new cloud-based system. During the migration process, an engineer makes an error in a script, and a significant portion of the data is permanently corrupted and lost.
The Allegation: The accounting firm is now unable to access critical client records, disrupting their business and damaging their reputation. They sue the IT consulting firm for negligence, demanding payment for the cost to manually reconstruct the lost data (estimated at $200,000 in labor) and for their business interruption losses.
The Financial Fallout: The IT consulting firm is a small business, and a six-figure judgment would be catastrophic.
How Technology E&O Responds: The technology E&O policy covers the legal costs to defend the firm against the negligence claim. The investigation confirms the error, and the insurer negotiates a settlement with the accounting firm to cover the costs of data reconstruction and their documented business losses.

Case Study 3: The Insecure Software Application

The Scenario: A software development shop is hired to build a custom patient portal for a regional healthcare provider. The developers, rushing to meet a tight deadline, fail to properly sanitize input fields in the code. Six months after launch, a hacker discovers this vulnerability (a classic SQL injection flaw) and uses it to access and steal the private health information of thousands of patients.
The Allegation: The healthcare provider is now facing a massive data breach, regulatory investigations, and lawsuits from its patients. They sue the software development shop, alleging that their professional negligence in delivering insecure code was the direct cause of the breach.
The Financial Fallout: The potential damages are in the millions, including regulatory fines and third-party liability.
How Technology E&O Responds: This is a prime example of where a blended technology E&O and cyber liability policy is critical. The policy responds to the lawsuit from the healthcare provider, covering the legal defense and any settlement related to the claim of professional negligence.

Case Study 4: The Accidental Copyright Infringement

The Scenario: A web design agency builds a new website for a client. A junior designer, looking for a specific icon, finds one online and incorporates it into the design, unaware that it is a copyrighted asset from a large stock photo company.
The Allegation: The stock photo company's legal team discovers the unauthorized use and sends a cease-and-desist letter to both the client and the web design agency, demanding $50,000 for copyright infringement.
The Financial Fallout: The client is furious and demands that the web design agency handle the situation. The agency now faces a legal threat and a damaged client relationship.
How Technology E&O Responds: If the agency's technology E&O policy includes coverage for multimedia liability and intellectual property infringement, it will respond. The policy would cover the legal fees to negotiate with the stock photo company and would pay for the eventual settlement, protecting both the agency and their client.

Case Study 5: The Critical Missed Deadline

The Scenario: A mobile app development firm signs a contract to build and launch an app for a retail client, with a hard deadline of November 1st to be ready for the Black Friday shopping rush. Due to unforeseen technical complexities and the departure of a key developer, the project falls six weeks behind schedule. The app isn't ready until mid-December.
The Allegation: The client misses the most lucrative sales period of the year. They sue the development firm for breach of contract, seeking to recover not only the fees they paid for the project but also the profits they claim they lost by missing the holiday shopping season.
The Financial Fallout: The claim for lost profits could be enormous and difficult to disprove. The legal fight itself would be a major drain on the firm's resources.
How Technology E&O Responds: The policy covers the defense against the breach of contract lawsuit. It allows the firm to fight the claim without having to pay for legal fees out of pocket, preserving their cash flow and enabling them to continue operating while the legal process unfolds.

The following bullet points summarize these common claim scenarios and illustrates the direct value proposition of a technology E&O policy.

Claim Scenarios Under Technology E&O

Software Bug
- Client's Allegation: Negligence; Breach of Warranty
- Potential Financial Impact: Lost client revenue, data correction costs, regulatory fines.
- How Tech E&O Responds: Pays for legal defense, settlement for client's financial loss.
Missed Deadline
- Client's Allegation: Breach of Contract
- Potential Financial Impact: Client's lost market opportunity, wasted marketing spend.
- How Tech E&O Responds: Pays for legal defense and court-ordered damages.
Data Migration Error
- Client's Allegation: Negligence; Failure to Deliver Services
- Potential Financial Impact: Cost to recover/recreate data, business interruption losses.
- How Tech E&O Responds: Covers defense costs and settlement for data restoration.
Security Flaw
- Client's Allegation: Professional Negligence
- Potential Financial Impact: Client's data breach response costs, regulatory penalties, lawsuits from their customers.
- How Tech E&O Responds: (If blended policy) Covers defense, settlement, and potentially client's breach response costs.
IP Infringement
- Client's Allegation: Copyright/Trademark Infringement
- Potential Financial Impact: Legal fees, licensing fees, damages to the IP holder.
- How Tech E&O Responds: (If coverage is included) Pays for legal defense against the infringement claim.

The Regulatory Gauntlet: Navigating FTC Enforcement and Legal Liability

In today's digital landscape, a dissatisfied client is not your only source of legal risk. Government regulators, led by the Federal Trade Commission (FTC), are taking an increasingly active role in policing the technology sector. For tech business leaders, understanding this regulatory environment is no longer optional; it's a critical component of risk management.

The FTC: The Federal Watchdog for Tech

The FTC has broad authority under Section 5 of the FTC Act to take enforcement action against companies for engaging in "unfair and deceptive acts and practices". In recent years, the agency has interpreted this authority to include a company's failure to implement reasonable and appropriate security measures to protect consumer data.

The FTC's scrutiny is not limited to consumer-facing giants. A 2021 FTC staff report on Internet Service Providers (ISPs) revealed how these companies collect and monetize vast amounts of user data, often with confusing or hidden disclosures. While the report focused on ISPs, its underlying principle sends a clear message to the entire technology ecosystem: if your service involves handling data, you have a duty of care, and the FTC is watching. The agency has brought hundreds of enforcement actions against companies for privacy and security failures, resulting in significant fines and mandated changes to business practices.

This creates a new layer of risk. An investigation by the FTC can be incredibly costly and disruptive, even if it doesn't result in a fine. You will need to hire specialized legal counsel to respond to subpoenas and information requests, and the process can drain significant time and resources from your leadership team. This is why modern technology E&O and cyber policies have evolved. What was once an optional "add-on" is now a core necessity: coverage for regulatory defense and penalties. A comprehensive policy should not only protect you from lawsuits from clients but also provide the financial resources to navigate an investigation from a powerful government agency.In today's environment, a policy without this component is dangerously incomplete.

The Legal Theories That Drive Lawsuits

When a client does sue you, their lawyers will rely on long-standing legal principles and apply them to your technology services. Understanding these theories can help you better appreciate your legal exposures.

Breach of Contract: This is the most common and straightforward claim. Your client will argue that you failed to deliver what was promised in your written agreement. This could be a missed deadline, a failure to provide a specific feature, or not meeting the performance metrics laid out in your SLA.
Negligence: This claim argues that you had a professional duty to perform your services with a reasonable level of skill and care, and you failed to do so, causing your client to suffer harm. For example, a client might argue that a reasonably competent software developer would not have released code with such a significant security flaw.
Fraud or Deceptive Trade Practices: This is a more serious allegation, claiming that you knowingly made false statements about your product's capabilities to induce a client to sign a contract. For instance, if you promised a piece of software had a specific integration that you knew it didn't, you could face a claim of fraudulent inducement.

A Proactive Defense: Integrating Insurance with Best-Practice Risk Management

Technology E&O insurance is a powerful tool for transferring risk, but it should be the last line of defense, not the first. The most effective risk management strategy is a proactive one, focused on preventing the errors and omissions that lead to claims in the first place. Insurance is a crucial component of this strategy, but it is not a cure-all. By integrating your insurance program with industry best practices, you can build a more resilient and defensible business.

The NIST Cybersecurity Framework: The Gold Standard

When it comes to technology and security best practices, the gold standard in the United States is the Cybersecurity Framework developed by the National Institute of Standards and Technology (NIST). NIST is a non-regulatory federal agency that creates standards and guidelines to promote U.S. innovation and industrial competitiveness. Its frameworks are widely recognized and adopted by both the public and private sectors.

The NIST Cybersecurity Framework provides a structured, risk-based approach to managing cybersecurity. It is organized around five core functions, which can be easily understood and applied by any technology business:

Identify: Develop an organizational understanding of your systems, assets, data, and the associated cybersecurity risks. Know what you need to protect.
Protect: Implement the appropriate safeguards to ensure the delivery of your services. This includes things like access control, data security, employee training, and keeping systems patched and updated.
Detect: Put processes in place to identify the occurrence of a cybersecurity event in a timely manner. You can't respond to an incident you don't know has happened.
Respond: Have a plan ready to go when an incident is detected. This includes containing the impact, notifying stakeholders, and eradicating the threat.
Recover: Maintain plans for resilience and for restoring any services or capabilities that were impaired during an incident. This is about getting back to business as quickly as possible.

The importance of aligning with the NIST Framework goes beyond just good security hygiene; it has profound legal implications. In a negligence lawsuit, the central question is whether your company met the appropriate "standard of care." Because the NIST Framework is so widely recognized and endorsed by the U.S. government, it is increasingly being viewed by courts and legal experts as the de facto standard of care for technology companies.

Imagine being in a deposition after a client suffers a data breach because of a flaw in your software. The opposing attorney asks a simple question: "Can you show us how your company's development and security practices align with the NIST Cybersecurity Framework?" If the answer is "We don't follow it," that can be presented to a jury as powerful evidence of negligence. Conversely, being able to demonstrate that you have a mature program based on the NIST Framework is a powerful legal defense. It shows that you took your professional responsibilities seriously and followed a rigorous, government-endorsed standard. Proactive adoption of NIST is no longer just a best practice; it is a vital legal defense strategy.

Practical Steps to Reduce Your Risk

Translating a framework like NIST into daily operations is key. Here are some practical steps every tech business should take to reduce the likelihood of a technology E&O claim:

Draft Ironclad Contracts: Your contracts and SLAs are your first line of defense. They should be written in clear, unambiguous language that precisely defines the scope of work, deliverables, timelines, and performance metrics. This helps prevent "scope creep," where a client's expectations expand beyond the original agreement, which is a common source of disputes.
Implement a Secure Development Lifecycle (SDLC): Build security and quality assurance into every phase of your development process, from initial design to final deployment. Catching bugs and vulnerabilities early is exponentially cheaper and safer than dealing with them after a product has been released to a client.
Prioritize Quality Assurance: Never rush the testing process. Rigorous, thorough QA is one of the most effective ways to prevent faulty products from reaching your customers.
Communicate Clearly and Honestly: Maintain open lines of communication with your clients. When problems arise, address them head-on. Avoid hiding behind technical jargon; instead, focus on explaining the business impact and your plan to resolve the issue. Good communication can often de-escalate a potential dispute before it turns into a lawsuit.

Conclusion

In an economy built on code, connectivity, and data, every technology company is in the risk management business. The services and products you provide are not just conveniences; they are mission-critical assets for your clients. This deep integration creates immense value, but it also creates significant liability. A single software bug, a missed deadline, or a security oversight can trigger a chain reaction of financial and legal consequences that can threaten the very survival of your enterprise.

Technology errors & omissions insurance is not merely a compliance item or a cost of doing business. It is a strategic shield designed for the specific realities of the digital age. It provides the financial resilience to withstand a client lawsuit, navigate a regulatory investigation, and manage the fallout from the inevitable mistakes that occur in the complex work of creating and managing technology.

However, insurance is only one piece of the puzzle. A proactive defense, built on the foundation of robust risk management principles like the NIST Cybersecurity Framework, is essential. By combining operational excellence with a comprehensive insurance strategy, technology leaders can move beyond simply reacting to threats. They can build stronger, more defensible, and ultimately more durable businesses, empowering them to continue innovating with confidence in an uncertain world.

Frequently Asked Questions (FAQ)

1. Is technology E&O insurance the same as professional liability insurance?

Yes, for technology companies, they are essentially the same thing. Technology E&O is a specific name for a professional liability insurance policy that has been tailored to cover the unique risks of technology products and services. You might also hear it called "tech professional liability" insurance.

2. My company is very small. Do I still need this insurance?

Yes. In fact, smaller companies may need it even more. A single lawsuit can be financially devastating for a small business or startup that doesn't have deep cash reserves. The cost to defend a claim, even a frivolous one, can easily reach tens of thousands of dollars. Technology E&O insurance transfers that risk to an insurance carrier, protecting your company's capital so you can continue to grow.

3. If we have a strong contract with a limitation of liability clause, do we still need technology E&O insurance?

While a strong contract with a well-drafted limitation of liability (LoL) clause is a critical risk management tool, it is not a substitute for insurance. An LoL clause can be challenged in court and may not be enforceable in all situations (for example, in cases of gross negligence). Furthermore, even with a valid LoL, you will still have to pay the legal fees to defend your company and enforce the contract, which can be very expensive. Insurance pays for those defense costs.

4. How much does technology E&O insurance cost?

The cost (premium) for technology E&O insurance varies widely based on several factors, including:

Your company's revenue: Higher revenue generally means larger contracts and higher potential liability.
The services you provide: Higher-risk services (like security consulting or handling sensitive data) will cost more to insure than lower-risk services.
Your claims history: A history of past lawsuits will increase your premium.
The coverage limits and deductible you choose: Higher limits of liability and lower deductibles will result in a higher premium. On average, a small IT business might pay around $67 per month, but this can change significantly based on your specific risk profile.