IT Consultants Errors and Omissions Requirements
Why Liberty University Requires Errors and Omissions Insurance
Imagine this scenario: you’re an independent contractor and you’re working on a project for Liberty University, the largest university in Virginia with one of the largest on-line programs in the world. The project you’re helping with involves updating a minor system that interacts with the university’s email system – pretty straightforward stuff. You do your work, the project ends, and everything’s good.
A few months later, the university’s email is invaded by a virus that compromises almost all student data the university holds. While the University’s cyber data breach insurer responds for the University the same insurer then attempts to subrogate its losses and the retention losses incurred by the University and looks at all IT vendors the University may have used having anything to do with its email systems.
You may say that you will simply negotiate a waiver of subrogation in your contract with the University. However, the University cannot automatically provide this as it is the insurers option to provide a waiver of subrogation. On Errors and Omissions policies, a waiver of subrogation is only available if the party requesting the waiver is not directly involved in work on the project.
Even though you likely had nothing to do with the virus , you’re now on the hook for presenting a legal defense for yourself. If you don’t have an Errors & Omissions policy in place, the cash for lawyers’ bills will have to come out of your pocket.
Should Every IT Firm Have Errors & Omissions Insurance?
The short answer is yes. E&O is a must for every IT professional. Errors and Omission Insurance can be typically bundled along with General Liability Insurance which is also required by Liberty University.
In truth, there are many reasons every IT specialist and tech company should purchase this type of insurance. Here are some of the most important:
- It serves as personal protection. Even as a careful independent contractor, you could be named in an E&O suit brought by a large corporate client related to a project you did minimal work on (as in the example above). Even if your involvement in the project was small, the cost of your legal defense could be enormous.
- It helps win new clients. E and O is not only used to protect your business against client claims; in fact, it can also help you land more clients. Carrying a robust Errors & Omissions policy demonstrates to clients that you have the resources necessary to serve it no matter what happens.
- Mistakes happen. Many IT experts think that they will not make a mistake, probably because they have been in the business for numerous years without a single unhappy client. But the time will come that a person or group produces imperfect results. Before this happens, it is essential that the company has the resources necessary to protect itself.
What Exactly is E&O Insurance?
Errors and Omissions Insurance (also called Professional Liability Insurance) is a type of coverage that lets you operate your business without worrying that an unexpected lawsuit will force you to drain your business or personal assets. E & O coverage kicks in when a client claims that work you’re responsible for (such as programming, software installation, networking, etc.) includes mistakes or oversights that caused them a direct financial loss.
Your E&O policy will offer payment to cover certain specific expenses associated with defending yourself against a lawsuit, including:
- Lawyers’ fees. Even if an Errors and Omissions claim against you is without merit, the existence of the claim means you’ll have to present a legal defense for yourself. To do that, you’ll want to have a lawyer on your side, particularly if your case involves uncharted legal ground. E&O Insurance covers the cost of lawyers’ fees up to the limits of your policy, so that you can focus on serving your clients rather than scraping up enough money to pay your legal bills.
- Other court costs. In addition to paying your lawyer, defending yourself might involve paying docket fees, expert witness fees, transcript fees, and more. Luckily, these are all covered by insurance.
- Settlements or judgments. If you agree to settle with your client or go to court and are found liable for wrongdoing, your E and O coverage will pay for this, too, up to the limits of your policy.
The kind of work you do and the type of clients you serve are two major factors that affect how high your Errors and Omissions policy limit should be. If you work with larger companies, it’s usually a good idea to have a higher E&O limit. Why? Because a single mistake that prevents a large company from operating (even for a day) could cause a much greater financial loss than one that prevents a sole proprietor from operating.