Type of Claim:
Errors & Omissions (E&O)
Cause of Action:
Negligence/Failure to Perform
Type of Insured:
Software Company
Facts:
A software company sells and installs a computerized fare system for a transportation authority. The company is also responsible for regularly maintaining and supporting the system.
Situation:
An overnight software upgrade results in erratic behavior of the fare system, including failure of the fare system equipment to operate. This failure causes fare system outages throughout the majority of stations in the authority’s network.
Challenge:
Due to the system failure, many stations allow passengers to travel without proof of paying the fare. The transit authority, which services thousands of passengers daily, suffers reputational harm. The transit authority sues the software company for negligence in the performance of services, specifying damages that include:
- Lost revenues
- Extra expenses for additional staff to manage the crisis, including overtime pay
- Lost revenues associated with reputational damages caused by the event
Resolution:
- Claim Expenses: $25,000+
- Indemnity: Settled for $300,000
Analysis:
This case highlights the critical importance of thorough testing and reliable maintenance in software upgrades, especially for systems integral to daily operations. The software company’s E&O insurance played a vital role in covering the substantial financial consequences resulting from the negligence claim.
For tech companies, having comprehensive E&O insurance is essential to mitigate risks associated with potential service failures and to protect against significant financial losses due to claims of negligence.
Conclusion:
Ensure your tech business is protected against unforeseen events and potential claims. We understand how to provide a path forward before these events happen. Learn more about how we can help here.