Our Buggy Code Cost the Client $100k in Lost Sales: Software E&O Insurance Paid!
The Bug That Ate Black Friday
My dev shop built a new e-commerce platform for a retail client. We tested it for weeks. But on Black Friday, a rare bug in our code prevented customers using a specific credit card from completing their purchases. The client lost over $100,000 in sales in six hours. They were furious and their lawyers sued us for the financial loss. I thought my small company was finished. But our Technology Errors & Omissions (E&O) policy stepped in. It paid for the legal defense and the final settlement, saving us from one tiny bug that caused a massive business failure.
Coding Errors & Omissions: Protecting Your Software Dev Business with Tech E&O
Your LLC Isn’t an Invisibility Cloak
As a young freelance developer, I formed an LLC and thought I was protected. My mentor, a veteran consultant, corrected me. She said, “Your LLC might protect your personal house if the business goes under, but it does nothing to protect the business itself from a lawsuit.” She explained that if my code fails and costs a client thousands in lost revenue, they will sue my business. Tech E&O insurance, she said, is the real shield. It’s what pays the lawyers and settlements, ensuring my business can actually survive a mistake.
Software Developer E&O Explained: Covering Financial Loss from Code Defects, Delays
It’s Not About Breaking a Window; It’s About Breaking a Business
Imagine you build custom scheduling software for a logistics company. A bug in your code misroutes 20 trucks, costing the company $50,000 in fuel and late delivery penalties. They will sue you for that pure financial loss. This is what Tech E&O insurance is for. It isn’t like regular liability insurance that covers bodily injury or property damage. It’s specifically designed to cover your client’s financial losses that happen because your professional service—your code—was faulty, delayed, or didn’t work as promised.
Common Claims: Buggy Releases, Failure to Meet Specs, Security Vulnerabilities in Code
A Trifecta of Tech Trouble
Our dev agency had a brutal month that showed the full range of E&O risks. A client threatened a claim because a buggy software update crashed their system. Another client refused to pay, claiming the app we delivered was missing a key feature from the agreed-upon specs. To top it off, we got a notice that a security vulnerability we left in an old client’s code had led to a data breach. It was a stressful lesson that liability isn’t just about one type of error; it’s about performance, security, and contractual failures.
Intellectual Property (IP) Infringement Claims: Does Your E&O Cover Copyright/Patent Issues?
The Open-Source Trojan Horse
To save time on a project, one of our junior developers used an open-source library he found online, not realizing its license prohibited commercial use. When our client launched their product, the owner of the library sued them for copyright infringement. Our client, in turn, sued us. Our standard E&O policy wouldn’t have covered this. Luckily, we had paid for a specific Intellectual Property (IP) infringement rider. It paid the legal fees to defend us from a “borrowed” piece of code that became a Trojan horse.
Comparing Tech E&O Policies for Software Developers: Read the Definitions!
The Devil is in the Definitions
My startup was buying its first E&O policy. One quote was much cheaper than the other. My advisor told me to ignore the price and read the definition of “Technology Product.” The cheap policy had a narrow definition that only covered our custom-coded software. The more expensive policy had a broad definition that also included our third-party platforms and cloud services. Since our entire business ran on AWS, the cheap policy was basically useless. That fine print made all the difference.
How Much E&O Coverage Does a Software Development Shop Need?
Your Client’s Risk is Your Risk
Our small dev shop started with a basic $1 million E&O policy, which seemed like plenty. Then we landed our dream client: a financial tech company. Their contract required us to carry a $5 million liability limit. Why? Because a bug in our code wouldn’t just crash a website; it could potentially cause millions of dollars in financial transaction errors. We learned that our insurance limit isn’t based on our company’s size; it’s based on the size of the financial catastrophe we could cause for our biggest client.
Claims-Made Policies & Retroactive Dates: Crucial for Covering Past Projects!
The Insurance Time Machine
I ran my freelance development business for three years before buying my first E&O policy. The agent asked for my business’s start date to set the “retroactive date.” He explained that my new “claims-made” policy would only cover claims for projects I did after that date. For an extra premium, we set the retroactive date back three years. A few months later, a client from two years ago sued me. Because we had set the date back, I was covered. Without it, I would have faced that lawsuit alone.
Filing an E&O Claim When a Client Alleges Your Software Failed Them
Stop Talking, Start Calling Your Insurer
We got an angry email from a client with the subject “URGENT: Legal Action.” They claimed our software had failed and cost them significant damages, and they were preparing to sue. My co-founder immediately started typing a long, defensive email back. I stopped him. I remembered our training: my first call was to our E&O insurance agent. He told us not to respond and not to admit any fault. He reported the claim, and within 24 hours, a lawyer hired by our insurer called us and took over all communication.
My Client Claimed Our Software Update Broke Their System: E&O Response
The Patch That Crashed Their Platform
We deployed a routine security patch to a client’s e-commerce site. An hour later, their whole site went down. They were furious, blaming our update. We were dragged into a tense dispute. We filed a claim with our Tech E&O insurer. They didn’t just provide a lawyer; they hired an independent forensic IT consultant. The consultant discovered that our patch had conflicted with a separate, un-disclosed update the client’s internal team had made. The expert report proved our innocence and resolved the dispute.
Does E&O Cover Contractual Liability Assumed in Client Agreements?
The Contract Clause That Can Void Your Coverage
As a young dev shop, we were so eager for a big contract that we signed the client’s agreement without a full legal review. The contract had a broad indemnification clause that made us liable for any problem, even if it wasn’t our fault. Later, an issue caused by the client’s own bad data led to a loss, and they sued us, pointing to the contract. Our E&O insurer explained they cover our professional negligence, but not the extra, broad liability we had voluntarily accepted in the contract. It was a very expensive lesson.
Protecting Your Business from Lawsuits Over Software Performance
The Statement of Work is Your Shield
A client sued our firm, claiming the inventory management system we built was “unacceptably slow” and was hurting their business. Our Tech E&O policy paid for our legal defense. The key to winning the case was our original Statement of Work (SOW). In it, we had clearly defined the performance metrics, like “page load times under 3 seconds,” which we could prove the system met. The client’s vague complaint couldn’t stand up to our precise, documented specs. A clear SOW is your first line of defense.
How Code Reviews and QA Testing Can Impact Your E&O Risk Profile
Good Process, Better Premiums
When we applied for our Tech E&O insurance, the application was incredibly detailed. It asked, “Do you have a documented QA process? Is all code subject to peer review before deployment? What is your testing methodology?” I realized that insurance underwriters see a company with strong, documented processes as a much lower risk. We later received a better premium quote because our rigorous QA and code review process demonstrated a professional commitment to reducing errors. Good process doesn’t just make better software; it makes for cheaper insurance.
Cyber Liability vs. Tech E&O: Understanding the Overlap and Differences
Two Sides of the Same Bad Coin
Imagine your medical records software gets hacked. The hacker steals patient data. The cost of notifying patients and the regulatory fines are covered by your Cyber Liability policy. Now, imagine the hacker also deletes data, causing your software to feed doctors bad information, leading to a patient being harmed. The lawsuit from that patient against you for your software failing is covered by your Tech E&O policy. One hack can trigger both policies. Cyber protects the data; E&O protects you when your technology itself fails.
Software Developer E&O: Debugging Your Business’s Liability Risks
The Ultimate Bug Bounty Program
As a developer, you spend your days hunting for bugs in your code. Your Tech E&O insurance is like the ultimate bug bounty program for your business. You pay a premium, and in return, the insurance company pays out a massive reward if a critical, business-threatening bug (a lawsuit) is discovered in the wild. It’s the safety net that catches the one catastrophic error that gets past your QA process, protecting your company’s future and allowing you to code with confidence.