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What is the Difference Between Product Liability and Technology Errors & Omissions?

Understanding the nuances of commercial insurance is crucial yet non-trivial for technology companies. Getting the wrong policy or coverage part might lead to a contract breach, risking a customer relationship. 

One of the more complex coverage issues is the difference between policies that protect you from third-party liability arising from your products or services. Here, two key types of insurance coverage that often get conflated but serve distinct purposes are Product Liability and Technology Errors & Omissions (E&O). 

Let's break down these concepts to shed light on their differences and why tech decision-makers should be well-acquainted with both.

Product Liability: Guarding Against Physical Mishaps

Product Liability insurance is the safety net that catches companies when their physical products cause harm. This coverage is essential for businesses that manufacture or distribute tangible goods, ranging from consumer electronics to specialized industrial equipment. And it's not just about the device malfunctioning but also the repercussions of that malfunction (for example, getting sued by a customer). For instance, if a robotic arm designed for manufacturing suddenly malfunctions, causing property damage or injuries, Product Liability insurance steps in. It covers the costs associated with legal defense, settlements, or judgments related to these physical damages.

Technology Errors & Omissions: A Shield for Professional Services

On the other side of the spectrum lies Technology Errors & Omissions (E&O) insurance. This coverage is tailored for the services and advice companies provide. In an era where software and digital platforms play pivotal roles in business operations, the risk of non-physical damages—such as financial losses due to software failure or data breaches—is significant. For example, if a cloud service provider experiences an outage, causing its clients to lose revenue, Technology E&O would cover the legal costs and damages claimed by the affected parties. Most critically, a software malfunction can affect your customer's operations or finances, opening the door to potential litigation due to lost business. 

Key Differences and Overlaps

The primary distinction between Product Liability and Technology E&O lies in the nature of the risk they cover. Product Liability addresses physical injuries or damages caused by a tangible product, while Technology E&O covers financial losses resulting from the failure of a service or advice to perform as intended. However, in the tech industry, these lines can blur. Consider a scenario where software integrated into a medical device fails, leading to patient harm. This situation might invoke claims under both Product Liability, for the physical aspect, and Technology E&O, for the service failure aspect.

Why Tech Companies Need Both

Tech companies are uniquely positioned at the crossroads of these product- and service-related risks. You need a risk management strategy that includes both Product Liability and Technology E&O insurance to protect against the multifaceted nature of tech-related risks comprehensively. This way, you protect the company and ensure you satisfy any possible contractual requirements from your customers or partners.