General Liability Insurance vs. Errors & Omissions Liability
Monday, September 26, 2016
Posted by: Tom Finger, VP Southpoint Insurance
You just finished up all of the documentation and incorporation stuff to get your world changing idea ready to launch. You even signed the lease on a new office downtown so you’re ready to go. Of course your landlord sends you over a list of insurance coverages you’ll need prior to move in. First on that list is General Liability. So you talk to your local agent and you purchase the coverage and, thankfully, it’s cheap. You’re ready to go.
Two months later, while negotiating your first contract the customer has inserted an insurance requirement clause. You look it over and the coverage that jumps out at you is the Errors & Omissions policy requirement. No problem you call your agent and he provides you with a quote and it’s more expensive than you thought. Way more expensive than your GL. Why? Keep reading for a simple understanding of the differences between General Liability (GL) and Errors and Omissions coverage.
GL provides cover for claims against you resulting in bodily injury and property damage arising from your products, services and operations. The key here is the claim MUST arise because of Property Damage or Bodily Injury, for example,
- A visitor to your office trips over an exposed wire and breaks a leg – bodily injury claim on your premises/operations
- Your product short circuits and causes fire damage to a building – products liability claim
Although GL primarily covers Bodily Injury and Property damage there is an exception, Personal and Advertising Injury Liability. This coverage is lesser known, but it’s very important protection for technology companies. It may vary from one insurance company to another, but generally it can:
- Address allegations such as false arrest, malicious prosecution and wrongful eviction
- Protect firms from suits alleging other personal injuries such as libel, slander, defamation and invasion of privacy
- Provide some limited coverage for intellectual property infringements, arising from a firm’s advertising activities
You should note that there is an exclusion that limits most personal and advertising injury coverage for companies that supply, and use media. As the technology industry has evolved and become more closely aligned with specific types of media, this exclusion has been extended to:
- Web site designers
- Search engines
- Internet service providers
What GL Does Not Cover
Take a look at the following exposures that are not covered in a GL policy:
- Intangible Property – Coverage for property damage normally does not extend to intangible property, such as computer data. So, if your business is found responsible to a third party for the loss or corruption of their data, your GL policy would not cover it.
- Economic Harm – GL does not cover claims that allege economic harm to a third party arising from your products or services. Let’s say your company’s product promises to route calls more efficiently, but instead allegedly drops calls, resulting in lost customers or lost sales for your client. Because this scenario does not involve bodily injury or property damage, your GL policy would not provide coverage.
- Impaired Property – There is an exclusion in most GL policies for loss of use of tangible property that is rendered useless or less useful simply because it contains your product. In other words, if the only thing wrong with another product is that your defective product is part of it, this does not constitute property damage and is not covered.
- Professional Services – If your GL policy contains a professional liability exclusion – and almost all do – you may have no coverage for bodily injury or property damage arising from your technology products (software, programming, etc.) or services (data processing, communication services, etc.). These exclusions create a gap in coverage between the GL and E&O policies because E&O policies typically exclude all bodily injury and property damage.
Errors & Omissions
Technology E&O (Professional Liability) coverage should be a core part of an insurance program for most technology companies, but it’s often overlooked or purchased only when required by contract. Typically, E&O policies are designed to cover:
- Liability associated with pure economic loss arising from a third party’s use of a technology company’s goods, products or services.
- Damages to a third party arising from loss, damage or corruption of intangible property, such as data, and loss of use of tangible property that is not physically injured arising from your defective product or work
- The basic form is strictly meant to cover errors in programming but as the Information Technology Industry has evolved so has E&O. Today it can be expanded to cover breach of security (Including 1st and 3rd party Liability), and/or Media liability.
What E&O Does Not Cover
There is generally no coverage on an E&O policy for bodily injury, property damage, or personal and advertising injury. These exposures are assumed to be addressed by the GL policy. However, in situations where professional services coverage is excluded from, or limited on, the GL policy, you may be able to purchase contingent bodily injury or property damage coverage by endorsement to the E&O.
E&O only applies to covered damages arising from your technology products or services, while a GL policy normally covers damages arising from all products, services and operations. NOTE: Some forms do provide coverage on an “Enterprise Wide” basis. This means that it covers incidental professional services that you may provide in addition to your technology services or products. For example you may have an accounting software package that you’ve developed but you also provide traditional accounting services. With “Enterprise Wide” language, you’re covered for those services as well. Without the language there would be no coverage under the form.
How Technology E&O Coverage Differs from GL
So why does the E&O cost more? For any venture that is primarily focused on technology products and services, the E&O product actually provides coverage for the claims you’re likely to see. Software products and services rarely cause bodily injury or property damage. The damages claimed are almost always economic in nature. So without an E&O policy the majority of you liability exposure is uncovered.
Southpoint Insurance has 40+ years experience helping customers with insurance, risk management, and employee benefits. Working as an independent insurance broker from the start has allowed us to form long lasting relationships to ensure that we’re there when our customers need us most. A wide range of products enable Southpoint to deliver continuous world class services uniquely tailored to your business, which is why Southpoint is among the top 25 privately owned independent Illinois Insurance Brokers. Learn more at: thinksouthpoint.com.