Technology Errors and Omissions Claims

Your technology company is vulnerable to a number of claims against it that are not covered by a commercial general liability insurance policy. Without technology errors and omissions insurance coverage, your company is exposed to the risk of clients holding you liable for such issues as programming errors, breaches of security, product performance, or other professional liability issues. In such cases, your company can be held responsible for costs associated with the error or malfunction itself, the costs of fixing the problem, and any costs resulting from the customer’s loss of business due to the error. Clearly, such costs can mount quickly and become devastating. To protect your business from such losses, it’s critical that you insure yourself against errors and omissions claims. Some of the allegations your company might face could be similar to the past claims detailed below.

Technology Errors and Omissions

A code error in custom software that a developer created for an investment firm caused the software to function incorrectly. As a result of the malfunction of the custom software it had purchased, the investment firm invested half a million dollars in assets that were later discovered to be undesirable. The investment firm sued the software developer for damages incurred because of the code error.

Employee Breach of Security

An internal breach of security can also cause loss to a technology company. In one case, an employee inserted code into his company’s software system that set off a malicious function (otherwise known as a “logic bomb”), erasing all of the company’s contracts as well as the propriety software that was critical to the operation of the company’s manufacturing tools. His company suffered a significant monetary loss because of this security breach. Additionally, the company lost its competitive edge in the electronics market. As a result of its losses, the company ultimately had to lay off eighty employees.

Losses Due to a Denial of Service Attack

A distributed denial of service (DDOS) attack can have devastating effects on a company’s ability to conduct business through its website. A hacker in one case attacked several large websites through multiple DDOS attacks. Multiple computers worldwide were hijacked by this hacker in order to overwhelm target servers with apparently legitimate requests for data. All of these large websites suffered serious interruptions in service, making the businesses unable to service their web customers and causing the loss of over $1.2 billion in revenue.

A similar case of a technology errors and omissions claim involved an email virus that bombarded the email systems of companies around the world. Many of these businesses were unable to continue normal operations during the time it took to overcome the virus; as a consequence, they lost millions of dollars in employee productivity and business revenue.

Personal Injury/Privacy Allegations

Technology errors and omissions claims can come not only from customers but also from competitors. As an example, a software developer promoted one of its products by claiming in marketing materials that its software was superior to the competitor’s because it featured a critical compatibility that the competitor’s product lacked. The competing software developer contended in a lawsuit against the software developer that its products had been disparaged.

Unauthorized Use of Intellectual Property

Responsibility for errors involving the unauthorized use of intellectual property is not always placed on a party that was aware of the violation. A case recently faced a technology company that provided advertising, through online banner ads and inclusion in direct mailings, for a product launch from one of its partners. The partner’s advertising included material that infringed upon another company’s intellectual property. When the third company sued for damages caused by this unauthorized usage, it took legal action against the technology firm that ran the partner’s advertising.

Cyber Extortion

Cyber extortion can affect a technology company in a variety of ways. One incident of cyber extortion involved a hacker who captured the credit card numbers of 300,000 customers from a retail website. Demanding $100,000, the hacker attempted to use the stolen credit card information to blackmail the retailer. The retailer did not accede to the hacker’s demands, and the hacker published a large number of the credit card numbers online. The publishing of these numbers caused roughly two million dollars in lost income and third-party damages due to the resultant charge denials, card cancellations, and re-issuances.

Network Business Interruption

Another case in which a malicious hacker caused extensive loss to a technology company was one in which a hacker deleted critical application files from a company’s e-commerce server. The loss of these files crippled the e-commerce server – and the company’s online operations – for five days. During those five days, customers were unable to access or make any purchases on the company’s website. Repairing the damage required the services of expensive consultants. Consequently, the company suffered a loss of $300,000 in costs and lost business.

Protecting Your Company from Technology Errors and Omissions Claims

Errors and omissions insurance is important coverage for every technology business to maintain. Mistakes happen, and you don’t want your company to suffer a catastrophic loss because of any kind of errors or omissions. Today’s technology companies face risks on an ever-growing number of fronts and from a litigious climate. Protect yourself and your business against that worst-case scenario you hope never happens.


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