Our EHR Software Glitch Caused Patient Harm: Tech E&O Insurance Paid Defense
The Allergy That Vanished
A bug in our new Electronic Health Record (EHR) software update caused a patient’s documented penicillin allergy to disappear from her chart. When she was later hospitalized, a doctor, relying on our EHR, administered penicillin. The patient went into anaphylactic shock and nearly died. Her lawsuit didn’t just name the hospital; it named our company for the software defect. Our Technology Errors & Omissions (E&O) insurance was crucial. It provided a specialized legal team and funded the seven-figure settlement. It proved that our code could have real-world, life-or-death consequences.
Insuring Healthcare IT Companies: When Software Errors Impact Patient Care
A Bug in Your Code is Now Malpractice
I asked the CEO of a healthcare scheduling software company why their insurance was so much more expensive than a standard tech company’s. He said, “If a bug in a standard scheduling app makes someone miss a meeting, they’re annoyed. If a bug in my app makes a patient miss a critical oncology appointment, their cancer can spread. The patient can sue the doctor for malpractice, and the doctor’s insurer will then sue us.” That downstream liability—where a simple software glitch contributes to patient harm—is what makes insuring health IT so complex and costly.
Health IT Insurance Needs: Tech E&O, Cyber Liability (PHI!), Business Interruption
The Holy Trinity of Health Tech Protection
Our startup created a patient portal for hospitals. Our insurance broker told us we needed a “holy trinity” of coverage. First, Technology E&O, for if a bug in our code leads to a clinical error. Second, and most importantly, Cyber Liability, for if a hacker breaches our portal and steals protected health information (PHI). Third, Business Interruption, for if our platform crashes and we can’t provide service to our hospital clients. He warned us that without all three, one single incident could wipe out our entire company.
Liability When Your Software Fails, Leading to Misdiagnosis or Treatment Errors
The Flaw in the Algorithm
Our company developed a new AI-powered diagnostic tool that analyzed medical images. A flaw in the algorithm caused it to miss the subtle signs of a tumor in a small number of scans. A year later, we were named in a dozen lawsuits from patients whose diagnoses were delayed. They claimed our faulty software led to their poor prognoses. Our Tech E&O policy was the only thing that stood between our company and bankruptcy. It defended us against the claim that our algorithm, not a human doctor, had committed malpractice.
Protecting Patient Data Your Software Handles: Massive Cyber Exposure!
The Hacker Who Stole a Hospital’s Worth of Data from Us
Our company’s software managed the billing for twenty different clinics. A hacker found a single vulnerability in our code and, in one night, stole the Protected Health Information (PHI) of over 100,000 patients from all our clients. The breach was our fault, not the clinics’. The financial fallout was catastrophic. Our Cyber Liability insurance had to pay for the forensic investigation, the notification letters for every patient, and the massive government fines for the HIPAA violation. The loss nearly destroyed us.
Business Interruption if Your Platform Goes Down, Impacting Clients (Hospitals/Clinics)
The Day Our Cloud Went Down
Our company provides a cloud-based EHR system to over 50 clinics. One morning, our entire platform crashed and was down for 48 hours. Our clients were paralyzed—they couldn’t see patient schedules, access charts, or send prescriptions. Our contracts had uptime guarantees, and we were suddenly facing huge financial penalties owed to all 50 clients. Luckily, our own Business Interruption insurance policy stepped in. It reimbursed us for the revenue we lost and covered the penalties we had to pay to our clients, saving us from a massive cash-flow crisis.
Comparing Tech E&O Policies: Look for Healthcare-Specific Wording!
“Bodily Injury” is the Key
A health IT founder was comparing two tech E&O policies. One was a standard policy for tech companies and was cheaper. The other was a specialized health IT policy. The broker pointed out a critical difference: the standard policy had an exclusion for “bodily injury.” Since a bug in health IT software can lead directly to patient harm (bodily injury), that exclusion made the standard policy useless. He learned that you must have a policy that explicitly includes coverage for bodily injury resulting from a technology failure.
Does Your Policy Cover HIPAA Fines and Penalties Resulting from a Breach via Your System?
The Fine That Was Bigger Than the Hack
A small health IT company suffered a data breach. They thought the cost of notifying patients would be the biggest expense. They were wrong. A year later, the U.S. Department of Health and Human Services levied a $1.5 million fine against them for HIPAA violations. They were horrified. Thankfully, when they bought their cyber insurance, they made sure it included “regulatory defense and penalties” coverage. The policy paid for the lawyers to negotiate with the government and, most importantly, paid the fine itself.
Filing a Claim When Your Health IT Solution is Blamed for an Adverse Event
The Finger-Pointing Begins
A patient was harmed after a medication error at a hospital. The family sued the hospital. The hospital’s lawyer, in turn, filed a claim against our company, alleging that our EHR software displayed the dosage information in a confusing way, which caused the error. Suddenly we were dragged into a massive malpractice lawsuit. Our Tech E&O insurer immediately assigned a defense team to represent our interests, fighting to prove that the software worked as designed and that the error was human, not technological.
My Doctor Uses an EHR: Considering the IT Vendor’s Insurance Backstop
The Ghost in the Machine
During my last doctor’s visit, I watched my physician click through dozens of screens in her Electronic Health Record (EHR) system. I realized there’s a third party in the exam room: the tech company that built that software. If a software glitch causes my doctor to miss a critical lab result, who is at fault? Her, or the vendor? As an insurance professional, I found it strangely comforting to know that behind that software is a vendor with a massive Tech E&O and Cyber insurance policy, acting as a financial backstop for my doctor.
Contractual Liability Requirements from Hospital/Clinic Clients
The Contract That Required $10 Million in Coverage
Our health IT startup was about to land its first big client—a major hospital system. We were so excited. Then we saw their vendor contract. It required us to carry a $10 million Cyber Liability policy and to name the hospital as an additional insured. Our current policy was only for $1 million. We had to scramble and pay a huge premium to increase our limits. It was a harsh lesson that in the health IT world, your clients’ insurance requirements dictate the coverage you are forced to buy.
Protecting Your Code and IP While Safeguarding Patient Data
Two Vaults, Two Keys
As the CEO of a health IT firm, I feel like I’m protecting two different treasure vaults. The first vault contains our source code and intellectual property—the secret sauce of our business. The second, more important vault contains our clients’ patient data. We have separate insurance for each. Our intellectual property policy protects our code from theft. Our Cyber Liability policy protects the patient data. You need two different types of keys to protect the two most valuable assets you own.
Errors in Implementation or Data Migration Causing Issues: E&O Coverage?
The Data Migration That Became a Data Disaster
Our company was hired by a clinic to migrate their old patient data to our new EHR system. Something went wrong in the transfer, and thousands of patient records were corrupted—allergies were mismatched, medication lists were jumbled. It was a data integrity nightmare. The clinic sued us, not because our software had a bug, but because our professional service of implementing the software failed. Our Technology E&O policy covered the claim, but it proved our risk isn’t just in the code we write, but in the services we provide.
Business Associate Agreements (BAAs) and Insurance Implications
The Agreement That Made Us Liable
Before a hospital would let us handle their patient data, they made us sign a Business Associate Agreement (BAA). This legal document formally obligated us to comply with all HIPAA rules, just as if we were the hospital itself. My lawyer explained that the moment we signed it, our liability skyrocketed. We were now directly on the hook for any data breach and the massive fines that follow. That BAA is the legal trigger that makes having a robust, multi-million-dollar Cyber Liability policy an absolute, non-negotiable necessity.
Healthcare IT Insurance: Covering the Digital Backbone of Medicine
The Invisible Financial Network
Modern medicine runs on a digital backbone of software and networks. EHRs, patient portals, and diagnostic algorithms are the invisible systems that connect every part of healthcare. But this backbone is fragile. It can be broken by a single line of bad code or a single hacker. Healthcare IT insurance is the invisible financial network that supports this digital backbone. It absorbs the immense risks of software failure and data breaches, ensuring the systems that power modern medicine can operate securely.