8 types of Errors & Omissions claims

Similarly to a breach of contract, clients can also pursue E&O claims for damages against a tech company for a breach of warranty. While a breach of contract involves a tech company not delivering a product or service stipulated in a contract, a breach of warranty involves a product or service not meeting a client’s expected performance. 

A breach of warranty claim is typically harder for a client to prove than a breach of contract, as it may be more subjective. Even so, this type of E&O claim can still be costly for a tech company to defend against in court or settle through arbitration. 

A tech company focused on spam reduction, for instance, could face a breach of warranty claim if a client using their services is still inundated with spam emails. In this case, the client could claim the tech company’s services did not meet promised standards.

Clients can pursue E&O negligence claims if a tech company’s products or services cause a negative impact. These claims usually are related to errors in the tech company’s code or service which causes harm to the client. Negligence claims also typically accuse the tech company of failing to practice with reasonable care. 

Negligence claims can be costly for a tech company, leading to other significant damages for a client. For instance, a client can pursue a claim against an IT hosting provider that, through its own negligence, improperly hosted the client’s website. Such improper hosting could lead to mistakes such as lost business, reputational harm, or security vulnerabilities within the client’s website.

Tech companies also need to be aware of any errors and omissions potentially stemming from the use of third-party open-source software libraries. The majority of software in development uses many of these libraries, and any issues or vulnerabilities could also affect a tech company’s overall code or product. An E&O policy may also protect against any negligence related to third-party code use. 

An E&O policy can be particularly useful for tech companies involved in copyright infringement claims. A thorough policy should cover legal expenses for a company either being accused of infringement or accusing another company of attempting to steal a copyright. For tech companies, copyright infringement claims may be related to particular software a company develops and sells, as well as any underlying code. 

Many tech companies may be particularly interested in how a thorough errors and omissions policy could cover their own copyright infringement claims. Such a policy may cover any legal fees and associated costs for a tech company to bring a legal challenge against another company that appears to be infringing on established copyright. 

A client may file an error and omissions claim against a tech company due to real or perceived fraud on the company’s part. Any outright lie a tech company tells a client can be the basis for a fraud claim. This is especially the case if the company or an employee lies to the client for financial or personal gain. Fraud claims involve a client believing they were deliberately misled while purchasing a service. 

As an example, a client may launch an E&O lawsuit for fraud against a cybersecurity company if the company knowingly lied to a client about the types of attacks against which its product could defend itself. An E&O policy could provide coverage for all lawsuit-related costs in such a case. 

A misrepresentation claim is similar to a fraud claim. While a fraud claim is related to a company deliberately lying about its product or services to a client, misrepresentation refers to a company concealing certain pertinent information. Misrepresentation may also involve a company making false statements to make its products or services appear more attractive or cost-effective than they may actually be. 

For example, a tech company that did not disclose additional fees while providing a quote could face a misrepresentation claim. 

Depending upon the product and services a tech company provides, the company may need an E&O policy covering defamation. Defamation refers to any statement or claim a business makes that is intended to harm another business’ or individual’s reputation. Defamation goes beyond written words and can also include published photography or cartoons. 

In the case of most tech companies, defamation is likely to occur online. Any statement on a company’s website or official social media accounts that harm another business or individual can be the cause of a defamatory claim. A tech company that allows public comments on its website can also face a vicarious liability claim relating to defamation if it does not remove a defamatory post. 

An errors and omissions policy may cover cases of either direct or vicarious liability for defamation claims. 

Cyber crime represents a particularly pernicious cause of error and omission claim, as technology companies are likely to handle large amounts of data for clients. In the event of a cyber attack like a data breach, a technology company can face potential lawsuits from numerous clients, regulatory fines, and costs related to performing cyber forensics and data recovery. 

Following a cyber incident, clients could also file a lawsuit against a tech company for issues such as negligence, poor performance, or improper software recommendations that proliferated a cyber attack.

In the case of cyber crime, a basic E&O policy may offer some protection. In claims related to negligence or poor performance which allowed an attacker to attack a client directly, a basic E&O policy may cover costs for the company. However, basic E&O policies typically do not cover the loss of third-party data.

In such cases, a tech company may want to bundle an E&O policy with a cyber insurance policy, which can provide more robust coverage in case of an incident like a data breach.

Errors and omissions policies should be considered a requisite for tech companies providing services, solutions, and products to clients. Tech E&O covers a wide range of claims, helping to insulate a company from potentially debilitating legal and court fees, settlements, and court-ordered judgments.

Coalition’s Tech E&O insurance is designed to keep pace with the speed of the tech market. Policies provide broad E&O coverage due to a failure in a company’s service or product, via technical or operational error. With broad E&O coverage, Coalition’s policies can help cover costs associated with privacy attorneys, IT forensic investigations, and other legal defense costs.