Why IT Contractors Need Prior Acts Coverage With Their E&O Insurance
Dan Levenson August 02, 2016
Imagine someone sues your company for allegedly infringing on the software code of a client you worked for last year. The former client may seek tens of thousands or even a couple of hundred thousand dollars in damages.
Will your insurance protect you?
It may depend on the coverage you have. Some companies will agree to pay for incidents back to a certain date, but this may only be if your errors and omissions (E&O) insurance includes prior acts coverage. Such coverage will protect you back to a date you and your insurance company agree upon.
When Does Prior Acts Coverage Apply?
Prior acts coverage provides continuous insurance protection. If you change policies or have no coverage for a certain period, your business will be exposed to claims that happened while you weren’t protected with prior acts coverage.
Why would a former client wait to sue you? There are a lot of reasons. Some may take a while to find an attorney. Others may not decide immediately that they want to sue. As a result, you may find yourself facing a lawsuit for something that happened quite a while ago.
Naturally, without the prior acts coverage, your new insurance provider would balk at something you did previously—unless you and your company agree to the coverage.
How To Get Prior Acts Coverage
If you want prior acts coverage, make certain the coverage has a retroactive date back far enough that you feel safe for any job, event, or incident you believe you could potentially be sued for.
Naturally, your insurance provider:
- Will charge more for a date further back.
- Might only be willing to give you a policy that goes so far back.
Why, as an IT contractor, do you need E&O insurance? There are a variety of reasons that almost any business needs such protection. Because IT contractors are involved in sensitive issues involving the computer system of a business and its security, they may even need it more than most because:
- They regularly provide a service. While other businesses might get sued if a client doesn’t like the service a contractor provides, IT contractors are especially vulnerable to copyright issues involving codes, data breaches, if a system gets hacked, and for other reasons.
- They regularly offer advice.
- They may even be required to carry coverage.
E&O insurance will cover:
- Defense costs
- Copyright infringement
- Claims from service provided in the past, with prior acts coverage
- Temporary staff and independent contractors
- Worldwide errors and omissions protection
- Actual or alleged negligence
- Personal injury, such as claims of slander or libel
When Might You Need E&O Insurance?
You might need E&O insurance even if you personally haven’t done anything wrong. Here are some examples of the kinds of things E&O insurance can cover:
- Suppose you hire a subcontractor who corrupts the data for one of your clients, and information representing $150,000 in potential sales is lost, and the client sues you.
- Imagine a company fires an employee, and one of your subcontractors forgets to prevent him from having access to the company computer system. He now works for a competitor and steals a list of clients and uses the list at her new job. The client sues you.
- The new software you installed for a company seems to not work properly. There is a two-week delay on an important project. It wouldn’t matter if you actually made a mistake or if the system is fine, but the subcontractor you hired to train employees didn’t do a good job. You could be sued either way.
E&O insurance is vital for almost any company or contractor involved in important work for clients—especially IT contractors. If you have any questions about the insurance and prior acts coverage, feel free to contact us.