Twenty-two percent of the world’s economy is made up of digital enterprises. That number is expected to increase to 25% by 2020. 15% of digital enterprises' market share has occurred only in the last 10 years. Many predict that further into the 21st century we can expect to see more smart devices, better inter connected platforms, and larger ecosystems. Essentially, more gadgets that can talk to each other on larger networks!
What we don’t always think about is the increase in auxiliary business that helps facilitate the growth of the digital world. The cloud storage center, the IT professional that installs the gadget, and the marketing firm that sells the product to the public are just a few that come to mind. These “auxiliary” industries carry many of the same exposures as the software developer who creates an app, but have less coverage than the software developer for tech related perils. The “auxiliary” industries rely on their commercial general liability policies as their primary liability coverage. The problem is that while a commercial general liability policy is good for bodily injury and real property damage it offers no coverage for tech related perils.
Policy Language
The key to understanding the gaps in a commercial general liability policy and how it relates to tech companies is the word REAL when it’s used to describe property. An insurance carrier does not consider data on a server or in the cloud as “real” or “tangible” property. Consider this: I run a cloud hosting center. Over the weekend my HVAC system breaks and my servers overheat and crash. On Monday my customers cannot access their data and programs which mean their businesses are effectively shut down until I can get the servers back online. My customers sue me for $500,000 for loss of revenue due to the time they were offline. My CGL policy will not pay for the damages because data and programs are not “tangible” property. If I do not have a technology errors and omission insurance policy I will have to pay the $500,000 out of my own pocket.
Coverage Breakdown
Technology errors and omissions coverage is a professional service policy similar to medical malpractice, or a lawyer’s errors & omissions (E&O) policy. The policy is designed for the tech industry with coverage not normally found in a general liability policy or commercial umbrella. The chart below compares the coverage provided by a tech E&O policy and a commercial general liability policy.
| Claims |
General Liability |
Tech E&O |
|
Financial Loss/ Consequential Damages |
Does not cover dollar loss to 3rd party unless associated with bodily injury or tangible prop damage |
Designed to cover financial loss and consequential damages |
|
Failure to Perform |
Does not cover |
Provides Cover |
|
Damage to Data |
Specifically excludes intangible property damage |
Specifically excludes tangible property damage |
| Advertising Injury/ Personal Injury |
May exclude insured’s professional services |
Usually covers insured’s professional services |
Tech E&O is designed to cover intangible property and many of the risks that surround intangible property. It is a smart buy if your business is involved directly or indirectly in the digital marketplace. Call us to determine if you need South Carolina tech E&O insurance and if so, how much coverage you need.