California Property & Casualty Broker-AgentCasualty InsuranceMedium
A small software development firm in California is purchasing a Professional Liability policy. The firm is concerned about a potential lawsuit arising from a client alleging financial losses due to a software bug that caused a system outage, even though the firm followed all industry best practices. Which of the following is most likely to be covered?
- AFinancial losses suffered by the client due to a software defect in the delivered product.
- BProperty damage to the client's office furniture due to a fire started by the firm's faulty equipment.
- CThe cost of replacing the firm's own damaged development servers.
- DBodily injury to the client's employees caused by a faulty server rack installed by the firm.
Show answer & explanationAnswer & explanation
Correct answer: A. Financial losses suffered by the client due to a software defect in the delivered product.
Professional Liability insurance, also known as Errors & Omissions (E&O), specifically covers financial losses suffered by clients due to professional negligence, errors, or omissions in the services provided. A software bug causing a system outage and financial loss falls squarely within this scope.
Why the other options are wrong
- B. Property damage is also typically covered by a CGL policy.
- C. Damage to the firm's own property would be covered by a Commercial Property policy, not Professional Liability.
- D. Bodily injury is typically covered by a Commercial General Liability (CGL) policy, not Professional Liability.
Professional Liability (E&O)
Insurance that protects professionals and companies from claims of negligence, errors, or omissions in their professional services, typically resulting in financial loss to a client.
- Covers financial damages, not bodily injury or property damage.
- Tailored to specific professions (e.g., doctors, lawyers, engineers, IT consultants).
- Can be claims-made or occurrence-based, though claims-made is more common.
Memory trick: E&O covers the 'oops' that cost money, not the 'ouch' or 'smash'!