Insuring Vulnerabilities in Software Programs - Tech E&O
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Insurance Vulnerabilities in Building & Implementing New Software Programs

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Software errors and omissions can cause millions of dollars in financial stress to a company. From tennis shoes to canceled flights, a simple mistake could mean the end for a business. For example, the software that ensured proper fulfillment of Air Jordan basketball shoes had a glitch that resulted in unequal distribution, costing Nike a reported $100 million in lost sales, several lawsuits, and a 20 percent decrease in the company’s stock. In recent news, Delta cancelled or delayed hundreds of flights, grounding thousands of passengers around the globe because its aging technology omitted the proper backup plans for a power outage. Costs stemming from Delta’s power failure are expected to reach millions of dollars.

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In an age of technological advancements and a focus on all things digital, tech startups need to be protected.

The errors do not have to be large to cost a significant amount of money. To prevent even the smallest mistakes from crippling a business, vendors and developers should be protected with Technology Errors and Omissions (E&O) coverage.

“At the core, Technology Errors and Omissions insurance covers financial harm resulting from the rendering of technology services or products sold,” said Ken LaBelle, Professional Liability, Director and Broker, Burns & Wilcox Brokerage. “A well-rounded insurance portfolio will also address media content, cyber and privacy liability, contingent bodily injury and property damage.”

Technology E&O coverage can even extend to business expenses that may include, but not limited to, business interruption, crisis management, legal fees and lost sales.

Tech E&O can save tech startups

“This industry-specific coverage can be critical for subject matter experts as one claim could potentially bankrupt an organization that is working to build its client base,” said LaBelle. “For example, a firm of 100 people could more readily absorb a $250,000 loss, as opposed to a small company of one to ten people. In addition, the business would have to cover legal fees associated with the case even if they were not at fault.”

The potential for loss is driving more and more small organizations to purchase coverage. If a sole developer, for example, creates a tech startup, they now have to rely on the employee’s work for the long term reputation of the business. In an age of technological advancements and a focus on all things digital, tech startups need to be protected.

Cyber liability v. Tech E&O

There is a big difference between a cyber liability policy and a Tech E&O policy. Cyber liability protects against cyber and privacy risks surrounding data breaches and it is focused on information for customers and employees. Whereas Tech E&O, or technology professional liability coverage, covers specific errors and omissions that a developer, designer or consultant may make.

“If a client were to experience a network intrusion that stemmed from a faulty website design, the client’s financial losses would be picked up under the technology professionals E&O policy,” said LaBelle. “The technology professional’s cyber liability policy would respond to its own data breach and network compromise, not that of their clients where professional services were provided.”

Gaps in the medical field

Brokers and agents should ask all clients and potential clients about the technology that they are creating and the industry that it serves to better understand the risk.

“If the client is developing technology and software that is involved in the medical field, a specialized broker would need to assist to fill a potential bodily injury gap that could otherwise be left open in a standard Tech E&O policy,” said Labelle.

New software and technology is consistently entering the medical field. Developers and designers of these systems can be held liable if bodily injury occurs from a system or design error. Tech E&O policies can be amended to pick up for bodily injury should an error or omission on the developers part be the root cause.

According to McKnight’s, a long-term care news publication, one Minnesota nursing home resident died due to a glitch in the computerized system for meal tickets. The elderly patient, who was supposed to have a pureed diet, received solid food instead because the meal ticket system regularly malfunctioned on holidays. Unfortunately, the woman passed away the following day. The family filed a lawsuit shortly thereafter.

“Tech E&O coverage is so important because there is technology in just about everything in the medical field at this point,” said LaBelle. He cites another similar example, saying “If a nursing home patient with dementia is able to leave due to a patient tether alarm malfunctioning, the developer can be sued for bodily injury if the patient gets hit by a car.”

With the expansive amount of technology in the world today, one small error or omission can change the trajectory of a business. Brokers and agents should work closely with developers and other business models that are involved in tech to determine their level of risk. Tech E&O coverage could save a client’s business and protect it from being just another statistic.

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