Question 1

Is E&O different from professional liability?

Accepted Answer

Functionally similar — both cover negligence in professional services. Historical convention: 'professional liability' is used for licensed professions (lawyers, doctors, architects, accountants), and 'E&O' is used for technology, consulting, and service providers. Modern policies often blur the distinction, and a tech firm's 'E&O' policy is structurally identical to an architect's 'professional liability' policy. Tech E&O specifically tends to include software defect coverage that pure professional liability sometimes excludes.

Question 2

Does E&O cover breach of contract?

Accepted Answer

E&O covers breach of contract WHEN the breach arose from negligent professional conduct (you were trying to perform but did so negligently). Pure breach of contract claims based on willful nonperformance or contract disputes that don't involve negligence are typically excluded. Defense for contract claims is often provided up to a sublimit even when ultimate damages aren't covered. Read 'breach of contract' provisions carefully — wide variation across carriers.

Question 3

What are 'damages' under tech E&O?

Accepted Answer

Damages typically include direct financial losses your client suffered (lost revenue from system downtime, costs to fix or recreate work product), defense costs, settlements, and judgments. Most policies exclude consequential damages — lost profits, lost market opportunity, reputational harm — unless they were specifically pleaded as part of the legal claim. Tech E&O often has special provisions for 'cost to remediate or correct' (paying to fix the underlying error) which traditional professional liability typically excludes.

Question 4

Does tech E&O include cyber liability?

Accepted Answer

Modern tech E&O policies typically bundle cyber liability for the insured's own operations (their data breach, their ransomware) and may extend coverage to client-facing cyber events resulting from the insured's professional services. The bundled approach is convenient but limits can be shared with E&O claims, eroding both. Larger or higher-risk firms often unbundle cyber into a separate dedicated policy with its own limit. Confirm whether cyber is included, sublimited, or excluded.

Question 5

What's a hammer clause and should I be concerned?

Accepted Answer

A hammer clause is a settlement-incentive provision: if the carrier proposes a settlement amount the insured rejects (often called the 'reasonable settlement offer'), the carrier's further obligation is capped at that proposed amount. The clause exists to prevent insureds from rejecting reasonable settlements and forcing carriers to fund expensive trials. Some policies have 'softer' versions where rejecting a settlement only triggers a cost-sharing arrangement. Hammer clauses are negotiable — request softer hammer language at placement.

Question 6

How does limitation of liability in client contracts affect E&O?

Accepted Answer

Strong contractual limitation of liability (LOL) clauses can dramatically reduce your E&O exposure by capping client damages at the fees paid or a multiple thereof. Carriers reward firms with consistent, enforceable LOL clauses with lower premiums. Florida courts generally enforce LOL clauses between sophisticated parties. Make sure your contracts are reviewed by counsel and that LOL clauses are consistent across the client base. Inconsistent or absent LOL provisions raise E&O premiums and reduce the carriers willing to write you.

Question 7

What's prior acts coverage?

Accepted Answer

Prior acts coverage (also called retroactive coverage) extends the policy to cover errors or omissions from before the current policy period — important when starting a new policy or switching carriers. New coverage starts with a 'retroactive date,' and only events after that date are covered. When switching carriers, request the new carrier match the old retroactive date so historical work stays protected. Failing to do so creates coverage gaps that can show up years later when an old client surfaces a claim.

Errors & Omissions Insurance

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