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4 Common Errors and Omissions Claims

Let’s say your organization, a tech startup or otherwise, enters into a contract with a partner. You do your due diligence and follow every agreement and clause to the letter. The project, from all angles, appears to be a success. Everyone, from all appearances, has done their job to the best of their ability. Launch day comes, and the product or service gets released to the public to massive acclaim. Mission accomplished.

Fast-forward a year or so: Something goes wrong. The partner shoulders most of the blame, but decides to slap you with a lawsuit anyway, claiming your company and its workers made a critical error (or omission) before the release date. Maybe that’s true, maybe it’s not.

Either way, the potential for future trouble is proof positive you’ll want to invest in error and omissions insurance. Some business partnerships even require it. Before you enter any arrangements, here are four of the most common errors and omissions (E&O) claims:

Breach of Contract

This allegation could occur if you fail to perform any responsibilities under the terms of a written or verbal contract, perceived or not. If a client or partner suffers financial loss, they could sue to recover damages, even for something as seemingly minor as missing a deadline. If you are providing a service to a client or partner, make sure everyone is happy with the contract before signing it, and make sure everyone understands mistakes could get made. Otherwise, with errors and omissions coverage, you can avoid potentially damaging fees associated with legal costs and settlements.

Insufficient Communication

Also known as acts of negligence, this is when you’re accused of poor communication or for failing to take reasonable care or control in a project. You can’t just assume a partner you’re in business with knows everything you know. You need to provide the right amounts of information at the right times with the correct documentation, otherwise you run the risk of getting sued for not keeping a partner in the loop. To avoid this, companies must maintain excellent management practices, consistent documentation of conversations, employee performance, and other transactions, and solid monitoring of project or company operations. Of course, you could have all of this and conduct business in the most professional manner, and still get slapped with a claim.   

Intentional Misrepresentation

If your company fails to disclose a piece of information that results in financial or reputational loss for a partner, then you could get sued for intentional misrepresentation, or the fraudulent misrepresentation of a third-party for financial or personal gain. One of the more common claims is for firms overstating their expertise and capabilities to secure a client.

Even if you didn’t try to mislead a third-party on purpose, a claim can still be brought against you or your firm if you aren't careful. The thing about intentional misrepresentation, though, is that the plaintiff must convince a court that your actions were intentional. Still, you'll incur court costs, so you’ll want errors and omissions insurance to cover legal fees.  

Software Failure

Tech companies that provide software that malfunctions or fails, causing financial damage to a client, you can be liable for damages. Software failure claims are common for tech companies and can be filed by both clients and consumers alike. Take, for instance, a billing software company that provides their software to a client. The billing software malfunctions and doesn't calculate overtime pay for hundreds of employees, resulting in underpayment. The client then has to incur additional costs to fix the problem and get updated payments to their employees. The client sues the software company for software failure, given that it resulted in financial loss for the company.

Tech companies often combine this type of E&O insurance with Cyber Liability insurance to provide additional coverage.

These are just a few errors and omissions claim examples your organization could face. Lessen the impact of potential allegations by contacting The Cody Group NY for a quote or any answers to your commercial insurance questions.   

Dominic Piccirillo