Yes, you probably need Tech E&O insurance if your startup builds software, provides technology services, or handles client data. If a customer claims your product or service caused them a financial loss, Tech E&O is the policy that steps in to defend and cover you. I place this coverage for early-stage tech companies every week, and the vast majority of them need it from day one.
What Is Tech E&O Insurance for Startups?
Tech E&O, short for Technology Errors and Omissions, is professional liability insurance designed for companies that sell technology products or services. It covers claims that your software, advice, or tech work caused a client to lose money. Think of it as malpractice insurance for tech companies. If a client says your code was buggy, your SaaS platform went down and cost them revenue, or your implementation advice led them astray, Tech E&O pays for your legal defense and any settlement or judgment up to your policy limit.
What Does Tech E&O Insurance Cover?
Tech E&O covers financial losses your clients suffer because of something you did or failed to do in the course of providing your technology product or service. In my practice, the most common covered claims fall into three buckets.
Errors and mistakes. Your software has a bug that corrupts a client’s data. Your API returns incorrect results that a client relies on for financial decisions. Your team misconfigures a deployment and the client’s system goes offline. These are professional negligence claims, and Tech E&O is built to handle them.
Failure to deliver. You promised a feature by a certain date and missed it, and the client says that delay cost them a contract or a market opportunity. You scoped a project incorrectly and the client had to hire another vendor to finish the work. Tech E&O responds to these breach-of-contract and failure-to-perform claims.
Intellectual property claims. Many Tech E&O policies include coverage for allegations that your product infringes on someone else’s copyright, trade dress, or other intellectual property. This is not the same as a full IP litigation policy, but it covers the most common IP risks small tech companies face.
Tech E&O also covers your legal defense costs, which often run higher than the actual settlement. Defense costs may be paid in addition to or within your policy limit depending on the policy form. This is an important distinction to review with your broker before binding coverage.
What Does Tech E&O Insurance NOT Cover?
Tech E&O does not cover every problem your startup might face. It specifically excludes several categories of risk that require their own policies.
Cyber breaches and data theft. If a hacker breaks into your system and steals customer data, Tech E&O alone will not cover the breach response, notification costs, or regulatory fines. You need a separate cyber liability policy for that. Many Tech E&O policies can be bundled with cyber coverage, and I usually recommend doing exactly that.
Employment claims. If a former employee sues you for wrongful termination, discrimination, or harassment, Tech E&O does not respond. That is what Employment Practices Liability, or EPL, covers.
Bodily injury and property damage. If someone gets hurt on your premises or you damage someone’s physical property, your general liability policy handles that, not Tech E&O.
Patent infringement. Most Tech E&O policies exclude patent claims. If your product might infringe a patent, you may need a dedicated IP insurance policy or endorsement.
Known claims and prior acts. If you already knew about a potential claim before your policy started, it is typically excluded. The same goes for incidents that happened before your retroactive date, unless you have prior acts coverage.
What Do Real Tech E&O Claims Look Like for Small Companies?
I see claims hit small SaaS and software companies more often than most founders expect. Here are three real-world scenarios based on the types of claims that cross my desk.
The data migration error. A 12-person SaaS company migrates a client from a legacy system to their platform. A configuration mistake corrupts six months of the client’s transaction data. The client sues for $180,000 in lost revenue and recovery costs. The Tech E&O carrier hires defense counsel and settles for $95,000 plus $40,000 in legal fees. Without the policy, the startup would have paid that out of pocket.
The SLA breach. A developer tools startup guarantees 99.9% uptime in their service level agreement. An outage lasts 14 hours during the client’s peak sales event. The client claims $250,000 in lost sales and demands reimbursement. The Tech E&O policy covers the defense and contributes to the settlement, which comes in well below the demanded amount after the carrier’s attorneys push back on the loss calculations.
The third-party integration failure. A fintech startup’s API integration incorrectly processes a batch of payments, causing a client to overpay vendors by $60,000. The client demands repayment and damages. Tech E&O steps in to cover the defense and the negotiated settlement.
How Much Does Tech E&O Insurance Cost for an Early-Stage Startup?
For a pre-revenue or early-revenue tech startup with under $1 million in revenue and fewer than 10 employees, Tech E&O typically costs between $1,500 and $4,000 per year for a $1 million per-claim limit. The exact price depends on your revenue, headcount, the type of technology you build, your client contracts, and your claims history.
Startups that serve enterprise clients or handle sensitive data like financial information or personal health data tend to pay toward the higher end of that range. Companies building internal tools or serving other small businesses usually land on the lower end. If you bundle Tech E&O with cyber liability, which I strongly recommend, the combined premium typically runs $2,500 to $6,000 per year for an early-stage company.
These are general ranges based on what I see in the market, not a quote. Premiums change based on your specific circumstances. The only way to know your actual cost is to get a formal quote.
Do I Need Tech E&O Insurance If My Client Contract Requires It?
If your client contract requires Tech E&O, the answer is simple: yes, you need it. I see this requirement most often in enterprise vendor agreements, government contracts, and platform partner programs. But even without a contractual requirement, you should carry Tech E&O if your company provides technology that clients depend on to run their business. One claim can easily exceed what a startup can afford to pay out of pocket, and the legal defense alone can run tens of thousands of dollars before anyone even gets to settlement talks.
Get a Tech E&O Quote for Your Startup
If you are a founder wondering whether Tech E&O makes sense for your company, I am happy to walk through it with you. I place this coverage for startups every day, and I can help you figure out the right limit, whether you need cyber liability bundled in, and what it will actually cost. No pressure, no jargon, just a straightforward conversation about protecting your business.
Start your Tech E&O application here.
Written by Joel Wagner, CIC, CA License 0G69009. This post is for educational and marketing purposes only and does not constitute coverage advice. Contact WHINS for a formal quote tailored to your business.
