Errors & Omissions Insurance for software developers

Hi everyone,

I'd like to get some input about the necessity, or lack thereof, of purchasing errors & omissions insurance. My plan is to go into business as a consultant developing & configuring software for corporate clients. The core work would be project based, but I also plan on developing and selling software utilities which could be sold passively. I have been told by someone already working in this specific field that they considered something similar but discarded the idea because it made Errors and Omissions insurance difficult to get.

My particular niche involves a commercial enterprise software system that is used by large manufacturing companies -- automobile, aircraft, defense, & pharmaceutical companies, for example. It is designed so that developers like me can write our own code that will modify its behavior so that the software will better meet the needs of the customer. The great fear is that something I would sell a customer would be blamed, rightly or wrongly, for shutting down production for some period of time. That's the fear that would make me buy insurance. On the other hand, I have to think that a properly crafted EULA for software purchased online or language in a project contract would eliminate the need for having the extra insurance.

so what does the NMM crowd thing about it?

thank you,

Scott

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Replies to This Discussion

Permalink Reply by Dave Posner on May 30, 2012 at 10:25am

Scott,

I currently work for an insurance agency as their claims manager. I know how Dan Miller feels about insurance. I also know what I've seen in almost 30 years of handling various types of insurance claims. If there is one thing I can guarantee, it is that if something goes wrong, the entity suffering the loss will turn over every single rock looking for someone else to pay for that loss, regardless of fault. I have seen individuals and companies who were 100% in the right, or not at fault get financially ruined by simply defending themselves. Usually, the legal fees alone amount to more than the value of an alleged loss.

I'm not saying this to scare you or to influence you one way or another. I am simply saying to look at all of your options based on a "worse case" scenario. Ask yourself, if someone was using your software for their business, and that software failed for one reason or another, and that failure resulted in a loss of business or some other loss, what would the "worse case" scenario be? How would you handle that? What would a court of law deem to be reasonable in what a customer could or should expect from the software, support, back up, etc? Can you set aside a legal defense fund just in case if you should choose not to get insurance?

I'm not saying you should or should not get insurance. I'm also not saying you should scrape your idea. What I am saying is you need to consider as many potential threats as possible, and devise a strategy for dealing with them should they come up.

Hope that helps,

Dave

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