Here's something most IT consultants and tech service providers don't realize until it's too late: a single coding error, missed deadline, or security oversight can trigger a lawsuit that costs hundreds of thousands of dollars to defend—even if you did nothing wrong. That's where professional liability insurance for IT and technology services comes in.
Also called Errors & Omissions (E&O) insurance or Tech E&O, this coverage protects your business when clients claim your professional services or technology products caused them financial harm. Think software bugs that crash client systems, data breaches from security vulnerabilities you missed, project delays that cost clients money, or intellectual property disputes over code you wrote.
If you develop software, provide IT consulting, manage networks, offer cybersecurity services, or deliver any kind of technology solution to clients, you need this coverage. Many clients won't even sign contracts without proof you carry it. Let's break down what you actually need to know.
What Professional Liability Insurance Actually Covers
Tech E&O insurance covers the professional mistakes and negligence claims that general liability policies exclude. When a client says your work caused them financial damage, your E&O policy covers your legal defense costs and any settlements or judgments against you.
Common scenarios include: A software bug in your application causes a client's e-commerce site to crash during Black Friday, costing them thousands in lost sales. A cybersecurity vulnerability you failed to catch leads to a client data breach. You miss a project deadline, forcing your client to delay a product launch. A client claims code you developed infringes on someone else's intellectual property. You accidentally delete critical client data during a migration. Your network design fails, causing system downtime that disrupts client operations.
Most tech E&O policies also bundle third-party cyber liability coverage, protecting you when your services or products lead to data breaches, privacy violations, or network security failures affecting your clients. This bundled approach has become standard because the line between professional negligence and cyber incidents is increasingly blurred in technology services.
Claims-Made vs. Occurrence: Understanding Your Coverage Trigger
This is where professional liability insurance gets tricky, and where many tech businesses discover gaps in their coverage too late. Most tech E&O policies are claims-made, not occurrence-based, and the difference is critical.
A claims-made policy only covers you if both the incident and the claim happen while your policy is active. Let's say you write code with a bug in March 2025 while insured, but the client doesn't discover it and sue you until April 2026 after your policy expired—you're not covered unless you maintained continuous coverage or purchased tail coverage.
An occurrence policy works differently—it covers incidents that happen during your policy period regardless of when the claim is filed. If that same bug occurred while you had occurrence coverage in 2025, you'd be protected even if the lawsuit comes in 2030. These policies cost more upfront but provide longer-term protection.
The reality is that claims-made policies are more common for tech companies because they're initially cheaper. But you need to understand the retroactive date and tail coverage implications to avoid leaving yourself exposed.
Why Your Retroactive Date Matters More Than You Think
Your retroactive date is the earliest date an incident can occur and still be covered under your current claims-made policy. Any work you performed before this date isn't covered—period. This date typically starts when you first purchase professional liability insurance and should never move forward as you renew or switch carriers.
Here's why this matters: Technology projects can take months or years to complete, and problems often don't surface until long after you finish the work. If you let your insurance lapse for even a few days, or if a new insurer sets a more recent retroactive date when you switch carriers, you create coverage gaps that can come back to haunt you years later.
When shopping for insurance or switching carriers, always verify that your retroactive date carries over from your previous policy. Maintain continuous coverage without gaps. If you're buying professional liability insurance for the first time, your retroactive date will typically be set to your policy start date, meaning past work is not covered—which is why getting insured early in your business life matters.
Defense Costs: Inside or Outside Your Limits?
Here's a question most people don't ask until they're facing a lawsuit: when your policy says it provides $1 million in coverage, does that include the legal costs to defend you, or is that in addition to the defense costs?
Policies with defense costs inside the limits count legal fees against your coverage cap. If you have $1 million in coverage and spend $400,000 defending a lawsuit, you only have $600,000 left for any settlement or judgment. Policies with defense costs outside the limits provide separate money for legal defense—your $1 million coverage stays intact regardless of legal fees.
Outside-the-limits defense coverage typically costs more but provides substantially better protection, especially for complex technology disputes where legal costs can easily run into six figures before you even get to settlement discussions. When comparing quotes, always ask whether defense costs are included in or in addition to your policy limits.
What You'll Actually Pay for Tech E&O Coverage
The average technology company pays about $67 per month for professional liability coverage with $1 million per occurrence and $1 million aggregate limits, plus a $2,500 deductible. That works out to roughly $800 per year—less than most businesses spend on software subscriptions.
Your actual premium depends on several risk factors. The services you provide matter—cybersecurity consulting or custom software development typically costs more to insure than basic IT support. Your annual revenue affects pricing since higher revenue often correlates with larger projects and bigger potential claims. Your client contracts play a role; if you're working with large enterprises or handling sensitive data, expect higher premiums. Your claims history is scrutinized—even one past claim can significantly increase your costs. And increasingly, your security practices matter, as insurers now evaluate your cyber hygiene scores, multi-factor authentication implementation, and endpoint detection capabilities.
The good news for 2026 is that tech insurance rates are finally softening after years of increases. Carriers are seeing fewer severe cyberattack claims because mandatory security controls like multi-factor authentication and endpoint detection are actually working. Companies with strong cybersecurity practices are getting rewarded with better rates as insurers shift to real-time risk assessment rather than historical industry averages.
Getting the Right Coverage for Your Tech Business
Professional liability insurance isn't optional for IT and technology service providers—it's essential protection against the reality that even excellent work can lead to expensive disputes. Start by identifying your specific risk exposure based on the services you provide and the clients you serve. Request quotes from insurers who specialize in technology businesses, as they'll understand your risks better than general commercial insurers.
When comparing policies, look beyond the premium. Verify your policy is claims-made and understand the retroactive date. Confirm whether defense costs are inside or outside your limits. Check what's specifically excluded—some policies won't cover certain types of work like cryptocurrency projects or AI development without additional endorsements. And ask about tail coverage costs upfront so you know what you'll pay if you ever need to shut down or switch carriers.
Most importantly, invest in the security controls that reduce your risk and lower your premiums—implement multi-factor authentication everywhere, deploy endpoint detection and response tools, maintain regular backups, document your security practices, and train your team on secure coding practices. These aren't just good business practices; they're increasingly the factors that determine whether you can get affordable coverage at all.
