August 16, 2011
People often can learn best from real-life examples. That can be said about insurance coverages too. There's nothing like an actual lawsuit claims scenario to demonstrate what a classic technology Errors & Omissions (E&O) professional liability insurance claim looks like.
The story that first ran in the Indianapolis Business Journal detailed the lawsuit filed by Brightpoint against Emptoris, Inc, a Massachusetts software provider who Brightpoint alleged "failed to deliver on contractual promises" and as the suit also added "for committing fraud and negligence, as well as breaching its agreement and warranty."
Brightpoint sought reimbursement of the $3 million it had paid and $2 million in damages to fix the software which was to provide Brightpoint with "spend management" and "spend analysis" advice.
As a recap, a Tech E&O policy - in this case for a software firm - would protect against a client claim holding the company responsible for things like software performance issues, programming errors, or the overall failure of your work to perform as contractually promised.
A huge benefit of E&O coverage is that it will provide the legal defense costs against all allegations, and it can pay for any resulting judgments and court costs too, up to the policy limits. Hence, the larger your potential contract exposure, the higher the limits you'd want to consider.
What should normally happen in a case like this from the insured's perspective is that once Emptoris received notice of the suit against them, they would immediately inform their insurance broker who would then file a claim with their carrier.
The carrier would get their claims team - including attorneys - involved in reviewing the facts, helping place legal counsel for the client and potentially begin negotiations with the plaintiff's attorney on the case.
In this case, it was later reported that the two sides reached a settlement. An important point for insureds to consider is that a lawsuit like this does NOT have to mean the end of a future working relationship. As with many initial claims, it might start off as a problem at the VP or corporate attorney level that elevates to a lawsuit. It can be at that point when one CEO might reach out to the other and say "We value our relationship together, let's work this out."
A good carrier understands the awkward dynamic for an insured who wants to properly defend itself and its reputation against a lawsuit, yet similarly wants to keep a longstanding or important client relationship.
I have no idea about the actual strength of the case or how much damage to the relationship was done, but it is certainly possible that Emptoris may have been able to offer a solution to fix the problem and maintain the relationship with Brightpoint going forward. That happens all the time.
Technology insurance is a unique area of coverage that shouldn't be neglected. If you have questions you'd like to discuss please don't hesitate to contact me.
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