Tech E&O insurance covers legal fees and damages when your software development or IT services cause financial losses for clients.Discover low-cost errors and omissions insurance below.
Tech E&O insurance covers legal costs when clients sue over software bugs, system crashes, or missed deadlines.
No state legally requires coverage, but federal contracts and client demands make tech E&O insurance basically needed.
You'll likely need additional coverage like cyber liability, general liability and business property insurance for complete financial protection.
Tech e&o insurance protects you when clients blame your software or services for costing them money. The insurance covers legal defense costs, judgments and settlements when clients sue over software bugs, system crashes or missed deadlines.
Most tech e&o coverage bundles errors and omissions with cyber liability insurance, so you're protected from both professional slip-ups and data breaches in one claims-made policy (coverage applies when you report the claim, not when the incident happened).
Most tech employees don't need personal tech E&O insurance since their employer's policy typically covers work-related mistakes. However, you might need your own coverage if you do freelance work.
That weekend app development project or consulting gig isn't covered by your employer's insurance, putting your personal finances at risk. If something goes wrong with your side work, clients will come after you personally, not your primary employer.
Independent contractors (1099 contractors) work independently and receive tax forms instead of W-2s. There's no legal requirement for you to carry tech E&O insurance, but since you operate as your own business, you won't have the protection employees get under their company's policies. You'll also find it nearly impossible to land quality clients without coverage.
Your biggest challenge is direct financial exposure when projects go wrong. Clients will come after you personally if you miss a deadline or deliver work that doesn't meet expectations.
Like software developers, no state requires tech E&O insurance for IT consultants, unless you're a government contractor. In that case, you'll need coverage under federal rules. But even if you aren't, you'll need it when dealing with clients and their data.
IT consultants face problems from being the "IT expert" in the room. When something breaks, like a security system you recommended gets breached, or a server migration takes down email for three days, you're often the first person they call. Since you touched the system last, you frequently face lawsuits even when it's not your fault.
Tech E&O insurance builds on standard professional liability principles, so these foundational guides offer valuable context for your coverage decisions:
Tech E&O insurance isn't required by law, but these scenarios make it necessary for anyone in tech, whether you're a solo developer, a small business or a large corporation:
Data Breach Notification Laws | When your tech service fails and causes a data breach at a client's business, they'll likely sue you for the notification costs, credit monitoring expenses, and regulatory fines they have to pay. Every state requires businesses to notify affected customers after breaches, and these costs add up quickly. California requires notification to the Attorney General for breaches affecting more than 500 residents, with penalties reaching $7,500 per violation. Your clients will expect you to cover these expenses when the breach comes from your work. |
GDPR and International Data Protection | The General Data Protection Regulation (GDPR) is Europe's privacy law that applies to any business that processes, transmits or stores data from European users, even those based in the U.S. Tech companies that fail to properly handle this data (through coding errors, inadequate security measures or poor data processing practices) face fines up to €20 million ($21.8 million) or 4% of their annual global revenue, with regulators choosing the higher penalty. Here's the real risk: clients affected by your GDPR compliance failures can sue you for their losses, making tech E&O coverage crucial for any company with international data exposure. |
Industry-Specific Compliance Failures | Healthcare clients need you to comply with HIPAA regulations, and financial services clients require Sarbanes-Oxley compliance. Your software bugs, security failures, or inadequate system designs can cause these clients to violate their regulatory requirements, and they'll hold you responsible for the resulting fines, legal costs and remediation expenses. These compliance-related lawsuits are exactly what tech E&O insurance covers. |
Contract and Client Requirements | Large corporations routinely require their tech vendors to carry professional liability insurance with specific minimum limits. Universities, hospitals and government entities make coverage a condition of doing business. Without enough tech E&O coverage, you can't compete for these contracts or maintain these client relationships. |
As a solo developer, freelancer or small tech business owner, you face risks beyond coding errors and missed deadlines. Tech E&O insurance covers your professional mistakes, but you need other coverage types too:
Handles data breaches, privacy violations, and regulatory fines that tech E&O doesn't cover. Many insurers bundle these policies together since professional failures often trigger cyber incidents.
Covers physical injuries and property damage during client interactions. If someone trips over your equipment or you accidentally damage their property, general liability steps in to handle the costs.
When stolen or damaged, your laptop, software licenses and office equipment tech E&O doesn't cover them. This coverage gets you back to serving clients after disasters.
Business Interruption Insurance. When fires, floods, or cyber attacks shut down your operations, you still have bills to pay. This policy covers lost income during forced shutdowns.
Your personal car insurance won't cover you when driving to client meetings or job sites. You'll need commercial auto coverage for any work-related trips.
When your code crashes a client's system or a data breach traces back to your software, you're facing more than just professional embarrassment. Tech E&O insurance handles these technology-specific risks, and while states don't mandate coverage, client contracts and federal work often do. Most tech professionals bundle it with cyber and general liability for complete financial protection.
Understanding tech E&O insurance requirements can feel overwhelming for technology professionals. We addressed the most frequently asked questions about coverage, costs and claims:
Tech E&O insurance costs vary significantly based on your business size, revenue, industry risk level and coverage limits. Small freelancers and startups typically pay less than established companies serving enterprise clients, while businesses handling sensitive data or providing mission-critical services face higher premiums because of more risks.
Common claims include software bugs causing client system downtime, equipment installations preventing online orders for extended periods and cloud services failing to back up critical data. Website crashes from coding errors, breach of warranty claims and missed project deadlines represent frequent liability scenarios that trigger coverage.
Think of tech E&O as financial protection for when your work goes wrong, like bugs in your code or missing a deadline. Cyber insurance covers data breaches and hacking incidents. Most insurers package both together, saving you money and headaches since professional mistakes often lead to cyber problems.
Tech E&O covers financial losses caused by errors, omissions or negligence in services provided, including legal defense costs and potential settlements. Coverage includes legal fees, attorney expenses, court costs, settlements and court-ordered judgments when tech companies are found liable for covered professional failures. Financial protection applies after you pay your policy deductible, and specific exclusions may apply.
Look at your client roster and revenue stream to set limits. A freelancer building websites for local restaurants needs different financial protection than a dev team creating banking software. Match your coverage to the size of the contracts you have. Enterprise clients often require specific minimum amounts before they'll even talk to you.
Yes, freelancers face direct financial exposure without employer protection when projects fail. Quality clients and large corporations typically require proof of E&O insurance before entering contracts, and many contracts mandate this coverage as a requirement for winning business. Your personal assets remain at risk without coverage.
Tech E&O specializes in technology risks like software bugs, data breaches and system failures, while professional E&O covers general service mistakes. Tech policies often include cyber coverage and understand coding errors, API failures and digital service risks that generic professional policies typically exclude.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.
