The project started as a simple “MVP” app for $30,000. Six months and 400 emails later, the client was demanding AI integration, blockchain wallets, and social feeds—all for the original price. When I finally drew a line and said “No more features,” they sued me for “Failure to Deliver” and “Breach of Contract,” claiming the app was useless without the features I supposedly “promised” in casual Slack messages.
Key Takeaways
- Breach of Contract vs. Negligence: Insurance covers negligence (mistakes). It usually excludes breach of contract (you simply deciding not to finish). However, most lawsuits mix both allegations.
- “Rectification” Funding: Some policies pay you to finish the features just to make the lawsuit go away.
- Slack is a Contract: In 2026, courts view Slack logs and WhatsApp messages as binding contract amendments.
- The “Fee Dispute” Defense: If the insurer sees this is just you trying to get paid, they won’t help. If it’s the client claiming “damages” (lost time/money), they will.
The “Why”: The Contractual Liability Exclusion
The Trap: Read your policy exclusions. You will see “Breach of Contract.”
It says: “We won’t pay if you just didn’t do what you promised.”
The Workaround: You need “Unintentional Breach of Written Contract” coverage. This covers situations where you tried to deliver but failed due to an error, misunderstanding, or scope creep mismanagement. Without this endorsement, a “failure to deliver” claim is an instant denial.
The Investigation: I Quoted 3 Major Carriers
1. CNA (The Big Player)
- My Analysis: CNA is very sophisticated. They understand “Scope Creep.” Their policy usually covers the defense costs to prove that you didn’t breach the contract. They will pay the lawyer to show the judge your “Change Orders.”
2. Chubb
- My Analysis: High premium, but they cover “Breach of Warranty” (e.g., you warranted the app would work). This is vital for software delivery disputes.
3. Philadelphia Insurance (PHLY)
- My Analysis: They offer “Miscellaneous Professional Liability.” It’s broader than standard Tech E&O. It covers “Wrongful Acts” in the rendering of services, which can include managing the project scope poorly.
[IMAGE: Graphic showing a “Scope Creep” timeline vs. Insurance Coverage triggers]
Comparison Table: Scope Dispute Defense
| Carrier | Covers “Failure to Deliver”? | Contract Defense? | Cost | Best For… |
| CNA | Yes (If Negligent) | Strong | | Agencies |
| Chubb | Yes | Very Strong | | Enterprise Devs |
| PHLY | Yes | Good | | Consultants |
Step-by-Step Action Plan
- Export Slack Logs: Save everything now before the client locks you out of the workspace.
- Create a “Traceability Matrix”: Map every delivered feature to the original contract. Prove you delivered the MVP.
- Notify Carrier: Frame the claim as “Client alleges negligence in project management.”
- Do Not Refund: A refund is an admission of failure. Let the insurance adjuster negotiate a settlement.
FAQ
Does insurance pay me the money they owe me?
No. E&O is liability (defense). It is not “Accounts Receivable” insurance.
Can I walk away if they stop paying?
Check your contract’s “Termination” clause. If you walk away improperly, you create the “Abandonment” liability.
Is “Feature Creep” negligence?
Failing to document changes is professional negligence. You have a duty to manage the scope.