Risky business: 5 ways to make sure your E&O policy covers what you need

May 1, 2017

Stuff happens. And in the technology sector, it happens a lot, so smart startups know that E&O coverage is a must.

E&O insurance covers financial losses your clients may suffer as a result of an error, neglect or breach of duty on your part, or losses that stem from (no offense) your poor workmanship.    

Depending on your policy, this applies to various scenarios, like if a programmer accidentally erases your clients’ data. Or a hacker steals electronic records you house on behalf of a healthcare client. Yeesh.

“E&O provides critically important coverage,” said Charlie Phillips, Vice President of the brokerage Phillips Bros. Insurance. “But it has another advantage. It can give startups a credibility boost, sending a clear signal to prospects that you are to be taken seriously.”

Read on to learn how to get what you need, and then some, from your E&O policy.  

Choose the right company. There is no one-size-fits-all E&O policy. Underwriters use their discretion to develop premiums based on their knowledge of your industry and its risks.

“Work with an insurance company that knows your industry,” said Katherine Drengler, Assistant Vice President of technology and e-business markets, CNA. “You want your underwriters to develop your premium based on their understanding and experience, not guesswork.”

Include the right stuff. Work with your agent to make sure your policy responds to everything you do, not just certain products or services. If you sell hardware as well as programming services, take a hard pass on the policy that covers only your programming services.  

Review the terms. The definitions for the many terms on an E&O policy — “claim,” “damages,” “privacy injury,” “content injury” — vary from carrier to carrier. Ask your agent to help you understand these definitions, as well as exclusions.  

A policy might say that damages include “the amount the insurer is legally obligated to pay.” It will also outline what damages do not include — and are therefore excluded. That should guide your selection: If you host data on servers, skip the policy with a mechanical or electrical failure exclusion.

Get more bang for your buck. “Some E&O policies offer more than just E&O,” said Drengler, noting that they might cover cyber exposures, for instance, or content injury coverage. “Since you’re buying E&O anyway, use this as an opportunity to make sure the policy you do select truly works for you.”

“E&O is designed to cover your clients for the most part, but these enhancements can also cover you in certain instances, such as extortion demands or crisis management after a security breach,” Phillips added. “In some respects, the enhancements are as important as the E&O itself. Take advantage of them.”

Include tail coverage. If you expect to acquire another company, make sure you’re not inheriting their problems. Require that the company purchase “tail coverage” on their E&O program before it’s rolled into yours. Thus, any claims the new company accumulated prior to the acquisition will be covered under their previous policy.

“There’s a lot of acquisition activity in the startup world,” said Phillips. “If you have any plans to acquire or be acquired, work closely with your broker and legal team to make sure you don’t get hit with unexpected claims without insurance to respond.”  

Drengler added: "Selecting the right program can go a long way to assist you in acquiring new business and to protect you against the potential for uncovered losses when you need it the most."


Photo via Shutterstock

CNA is the country’s eighth largest commercial insurance writer and the 14th largest property and casualty company. Learn how they can help you meet your insurance needs, including by connecting you to the right brokers, like those at Phillips Bros. Insurance.