Why IT E&O and not just GL?

IT companies – especially small company insureds or start-ups – often have a false sense of security where their commercial general liability policy is concerned. In short, many believe they are covered for all eventualities. In truth, they are not.

A commercial general liability policy provides coverage for bodily injury, property damage and personal injury. But since professional services are excluded, these policies do not respond to a negligent act, or error or omission resulting from the insured’s failure to perform or render a professional service.

Information technology errors & omissions (IT E&O) insurance provides coverage for third party financial claims resulting from an insured’s negligent act, error or omission from a professional service. These claims may result from intangible losses, failure of their product, failure or breach of their network or failure to provide or perform a service.

E&O coverage is important for the IT companies, especially since the potential cost to defend and litigate a loss can be expensive and exhaustive. It can also result in financial ruin if the company’s assets are insufficient to settle the claim.

Contractual obligations by third parties are becoming increasingly relevant as well. Third parties contracting with IT companies are requesting proper E&O coverage in order to protect their own interest. This type of E&O policy has grown in popularity as the IT sector has grown, but insureds may sign contracts with potential clients not fully understanding the requirements.

Their knowledge gap gives Insurance companies and brokers a tremendous opportunity to educate their clients, as well as to distinguish them selves in this space. Insurers and brokers familiar with the intricacies of information technology issues not only understand what must be in an IT E&O policy, such as potential trigger event, but also Insurers are generally connected with law firms possessing the requisite experience to handle related claims.

The IT environment is extremely competitive within North America and abroad. Companies are expanding their professional services to meet the demands of their clients. Due to increased service needs, insureds might over promise certain services which they cannot fulfill. A well-crafted IT E&O policy can make all the difference for organizations that find themselves stretching to meet demand.

By: Rhea Turchinetz, CIP, Vice-President, Western Region, Creechurch Underwriters