In most industries, management takes a well-thought-out approach to mitigating exposures. No matter the amount of caution, however, mistakes and oversight still occur. Technology companies in Canada are highly vulnerable to this truth, mainly because of technology’s ever-evolving nature. 

Plus, the tech industry is booming nowadays. From 2013 to 2018, Canada’s fastest-growing tech companies grew their revenues by an average of 709.02%. As imagined, rapid development brings plenty of innovation and progress — but it also means facing more risks. Not even businesses making the Growth 500 list can avoid this type of exposure. 

However, a solution exists; errors and omissions (E&O) insurance is a type of personal liability insurance. This coverage helps support risk management by covering two significant risks, which include:

  • Third-party financial loss resulting from the failure of the insured’s product to perform as intended or expected.
  • Third-party financial loss resulting from an act, error, or omission during the insured’s performance of services. 

Tech E&O Liabilities

Canadian tech companies face plenty of risks. For example, glitches and service interruptions can cause unwanted pauses in business, resulting in damage to your client’s finances and reputation. An E&O policy helps to cover losses that your client experiences by protecting you from legal defence costs if a lawsuit arises. 

Along with glitches, data and sharing complexities present a unique risk, as well. It’s safe to say that data management and protection is complicated in the modern world. New regulations and laws, such as the GDPR and the California Consumer Privacy Act, limit how we can use it. 

Lastly, cybersecurity is a primary concern for most companies, including Canadian tech companies. Cybercriminals are increasingly stealthy, costing businesses an average of $4 million per data breach. Managing these sophisticated, multi-tiered attacks is nothing to shirk. Plus, mere human or machine error can cause massive security problems, too, so the vulnerabilities come from all sides. 

Source: IT World Canada

Common Tech E&O Claims

Despite predictions of a 2020 tech market bust, this industry is still red hot. Venture capital continues to pour into multiple organizations related to telehealth, biotech, educational tech, cybersecurity, and more. On the flip side of progress, the booming nature of tech has revealed five common E&O lawsuits that play out in the tech industry. 

1. Breach of Contract 

Technical difficulties, glitches, and more could result in a costly breach of contract lawsuit. If your Canadian tech company vows a particular service or product but fails to deliver for one reason or another, it’s known as a breach of contract. These claims are not only widespread, but the price tags are often lamentably massive.

2. Negligence 

Human error can land a tech company in hot water — but still, mistakes happen all the time. Employees could mistakenly expose sensitive information by mistyping an email address or misplacing their laptop. When this happens, the situation might cause financial loss to others or result in a data breach. Naturally, negligence is a frequent basis of legal action. 

3. Copyright Infringement 

Although copyright infringement is nothing new, it’s still incredibly costly. If Canadian tech companies infringe on another business’s code or software copyright, it will likely result in a time-consuming and expensive court battle. Conversely, another business might steal your code or software. Unfortunately, protecting your rights means pursuing a lawsuit against the offender.

4. Personal Identifiable Information (PII) Theft 

Vicious cyber attacks can infect your software with a virus to steal vital data, such as names, addresses, or even social security numbers. When your tech company was supposedly protecting this PII, the blame will likely be cast in your direction. The resulting defence fees and recovery costs could be immense.

5. Defamatory Online Content

Libellous content, including user reviews and comments, could mean trouble for Canadian tech companies. Plenty of lawsuits have resulted from user-generated content. Likewise, defamatory online material directed at other businesses could cause damage to your company. In this case, recovering your losses might mean filing a lawsuit.

Tech E&O Lawsuit Scenarios

Hundreds of tech E&O cases have seen daylight. It only takes one tiny mistake to cost a company millions of dollars in damages. The following are a few scenarios that claim adjusters frequently handle. 

A tech company designed and implemented a new payroll system software for a massive corporation — but it flopped. The corporation sued the tech company for breach of contract. The corporation was forced to retain a different tech company to finish the job to clean up an alleged $150 million worth of damages. 

Consider the multi-national corporation selling tech products to businesses worldwide. Except that one particular tech product had a design defect. Over 500,000 of these units were sold and distributed to a specific company, causing interference and disruption. The tech corporation faced lawsuits exceeding $50 million for costs relating to the indemnification of their customer.

For a famous, real-life example of a tech E&O claim, let’s look at the case of Oracle v. Google. This case was better known in Silicon Valley as the “Lawsuit of the Decade.” The lawsuit started in 2010 when Oracle sued Google, claiming Google ran a program that infringed on Java’s patent — but Google contended that their specific API usage was “fair use.”

The battle lasted nine years when the United States Court of Appeals for Federal Circuit eventually ruled in favour of Oracle. Although this ruling wasn’t until 2018, Oracle is still seeking over $8 billion in damages. As you might have guessed, Google is appealing to the Supreme Court of the United States. 

Teaming Tech E&O and Cyber Insurance 

Many businesses utilize the one-two punch of E&O and cyber insurance to cast a wider safety net. These two policies work hand-in-hand and benefit Canadian tech companies by:

  • Providing coverage for errors, omissions, negligence, and product failures that may occur.
  • Providing first-party and third-party coverage for financial loss due to a data breach or other cyberattacks. 

When PII is compromised, the court costs and data restoration can (and probably will) skyrocket rapidly. Individually, E&O and cyber insurance are essential. Together, these policies are invaluable, mainly because of the coverage overlap they offer. As a result, an excellent strategy is to bundle policies with one carrier. Plus, this approach is convenient and cost-efficient. 

Keep in mind that cyber exposures are incredibly diverse. Sometimes it’s tricky knowing which policy applies to a specific loss, E&O or cyber insurance. Bundling policies with one carrier offers more assurance that the claim won’t be denied.

How to Make the Most of Your Tech E&O Insurance

Keeping pace with tech innovations is no small feat — but a robust tech E&O policy will do that. Look for coverage that is tech-tailored, so no or only a tiny part of your business is exposed. Canadian tech companies evolve quickly, and insurance must keep up with them. 

Consider a potential carrier’s financial strength, as well. A useful resource for reviewing this data is A.M Best Rating. Don’t forget about the carrier’s experience and reputation in the industry, either. 

Lastly, getting the most out of your tech E&O insurance is more than merely the carrier’s overall viability. The quality of your policy also depends on several factors, such as:

  • Company size
  • Products and services provided
  • Technology strength (i.e., new and emerging or established and proven)
  • Size of contracts
  • Specific company risk and risk management plan
  • Coverage limits
  • Experience level of the company team
  • Litigation history (including previous claims)

Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you. 


Want to know more about E&O or Cyber insurance? Talk to us! You can contact us at ​info@foundershield.com​ or create an account ​here​ to get started on a quote.

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