If you consider insurance to be a necessary evil, you’re not alone. While many businesses understand the value of proper insurance protection, others view it as a required nuisance needed to secure contracts.

The insurance industry itself is partially to blame, as lengthy applications and confusing terminology don’t make the process user-friendly.

For example, “personal injury” refers to libel, slander, or defamation of character in the insurance world, whereas the same term is used by attorneys to refer to car accidents, medical malpractice events, and other situations governed by tort law.

Then we have the phrase “cyber insurance.” Many technology companies mistakenly use this as a blanket term to refer to insurance covering their tech-related professional mistakes. Some will also mistakenly assume their umbrella policy covers such mistakes since, well, “umbrella” is an all-encompassing term.

I’m here to provide some clarity and hopefully eliminate confusion regarding cyber insurance versus technology errors and omissions insurance.

Cyber Insurance

Cyber Insurance has been around since the late 1990’s. Unlike traditional insurance lines of coverage, such as property, general liability, and auto insurance, cyber insurance has evolved dramatically over the last couple of decades.

While early forms of cyber insurance products addressed defamation or infringement claims for information published on the internet, the product soon evolved to address issues caused by data breaches. Eventually, as the world became increasingly connected via technology, new threats emerged and policy forms responded accordingly.

Current cyber insurance policies provide a broad combination of first-party and third-party coverages.

For example, typical first-party coverages include business interruption, data restoration/recovery, bricking, reputational harm, social engineering, and invoice manipulation – in other words, issues that directly affect your business.

On the flipside, third-party coverages include network security liability, privacy liability, media liability, and regulatory liability – or issues that affect other parties because of a cyber event. This includes various breach response costs such as credit monitoring after a breach.

In short, cyber insurance provides protection against covered incidents where systems are breached, compromised, and/or fail.

Technology Errors and Omissions Insurance

This type of coverage, often called tech E&O for short, is the technology equivalent of a medical malpractice policy.

If a doctor provides incorrect advice or makes a mistake during a procedure, he or she would rely on medical malpractice to provide defense and pay for damages. Similarly, if a technology firm is negligent or makes a mistake during their professional operations, they can reply on their E&O insurance to respond to claims.

Sample claims include breach of contract or warranty, failed implementation, software failure, inaccurate advice, or a security lapse.

Different Coverages That Work Together

While these are two distinct types of insurance, there can certainly be situations where both coverages are triggered. This is why it is often advantageous to have both coverages with the same insurance company.

Combining both cyber and tech E&O with one company will eliminate potential finger pointing over gray areas and will allow for coordinated defense and claims administration efforts.

The good news is that several well-known insurance companies offer technology package policies that combine these coverages, along with other standard types of insurance (e.g., property and general liability), into a single technology package.

In addition, you can usually add umbrellas onto such policies. Since we didn’t define that earlier, umbrella policies are excess liability policies that provide an extra layer of liability protection whenever underlying limits of insurance are exhausted by large claims. Umbrellas are offered in $1,000,000 increments and are relatively inexpensive for the protection that is provided in today’s litigious environment.

Insurance for technology firms is not a one-size-fits-all solution, so ensure your business is properly covered based on your unique exposures and operations. While the process can be confusing and sometimes frustrating, know that there are agencies in the marketplace who have the expertise to assist you with navigating the waters.

About the Author

Marc McNulty is the Chief Operating Officer and a principal at The Uhl Agency, an independent insurance agency serving southwest Ohio since 1958. With 25 years of experience in the insurance industry, Marc simplifies complex coverage decisions by providing his clients with clear guidance and strong coverage from some of the top insurance companies in the marketplace.