Tech E&O vs Professional Indemnity: Understanding the Critical Distinction

Know which policy protects you when software fails, advice proves wrong or products cause financial loss to users.

Tech E&O (Errors and Omissions) and Professional Indemnity are often used interchangeably in UK insurance markets, but subtle distinctions exist. Professional Indemnity covers negligent acts, errors and omissions in professional services. Tech E&O emphasizes technology product failures, software defects and system performance issues.

US markets distinguish them clearly; UK insurers typically offer Professional Indemnity policies with technology endorsements rather than separate E&O products.

Key coverage difference: PI focuses on service delivery failures, Tech E&O on product performance failures. SaaS companies often need both service and product protection.

Most UK tech businesses purchase Professional Indemnity with tech-specific endorsements rather than standalone E&O. Limits typically £1 million to £5 million for both policy types.

If you’re a UK software company shopping for insurance, you’ll encounter brokers who talk about Professional Indemnity, others who mention Tech E&O and some who use both terms interchangeably. This isn’t just confusing terminology, it reflects a genuine structural difference between US and UK insurance markets.

But here’s what matters for your business: It’s not just about which name your policy uses, it’s about whether your cover actually responds when your software fails, your advice proves inadequate or your product causes client losses. The policy title matters far less than what’s actually covered and excluded.

If you’re building software as a service, providing technical consulting or developing products that other businesses rely on, you need to understand whether you’re buying service liability cover, product liability cover or both. Because getting this wrong means discovering your insurance won’t pay when you need it most.

The fundamental distinction between service and product liability

Professional Indemnity historically covers professional services. Think lawyers, accountants, architects and consultants providing advice and expertise. You deliver a service, the client relies on it and if your service proves inadequate they suffer financial loss. That’s classic Professional Indemnity territory.

Tech E&O evolved to cover technology products and solutions. Your software, platform or system performs inadequately, fails under load or contains defects that cause user losses. The focus shifts from human expertise to product performance.

For software companies, the line blurs immediately. When you build bespoke software for a client, are you providing a professional service or delivering a product? When your SaaS platform goes down, is that a service failure or product defect? The answer is often both, which is why UK insurers typically wrap technology exposures into Professional Indemnity policies rather than selling separate E&O products.

According to Lloyd’s underwriting guidance, the distinction matters most when determining whether cyber insurance should also respond alongside professional cover. A pure service failure stays in Professional Indemnity territory. A product defect affecting multiple customers might trigger both Professional Indemnity and cyber cover depending on policy wording.

How UK insurers actually structure technology liability cover

Most UK technology companies purchase what’s called Professional Indemnity insurance, but the policy includes endorsements and extensions that address technology-specific risks. This effectively provides E&O-style cover under a Professional Indemnity policy title.

Your Professional Indemnity policy for technology businesses typically includes:

Errors and omissions in software development, covering coding mistakes, design flaws and development failures that cause client losses. This mirrors traditional E&O coverage but sits within your Professional Indemnity policy structure.

Failure to meet service level agreements, protecting you when your system uptime, response times or performance metrics fall short of contractual commitments. Pure E&O policies emphasize this more heavily than traditional Professional Indemnity.

Intellectual property infringement arising from your work, though this often requires specific endorsement. If your code infringes someone else’s patent or copyright, some policies cover resulting claims whilst others exclude IP issues entirely.

Loss of or damage to client data in your custody, care and control. This covers scenarios where client information stored on your systems gets corrupted, deleted or made inaccessible through your negligence.

The policy you’re actually buying is Professional Indemnity in name but E&O in substance. UK insurers simply haven’t adopted the separate E&O product naming convention that dominates US markets.

When you need Professional Indemnity with technology endorsements

If you’re primarily providing services to clients, Professional Indemnity with tech endorsements serves you well.

Software development agencies building bespoke solutions for individual clients need Professional Indemnity that covers both service delivery and product defects. Your exposure comes from failing to meet project specifications, delivering inadequate code and providing unsuitable technical advice. Standard Professional Indemnity with technology endorsements addresses all three.

IT consultancies and technical advisory businesses operate in classic Professional Indemnity territory. You’re selling expertise and advice, not products. Your claims arise when your architectural recommendations prove unsuitable, your security assessments miss critical vulnerabilities or your technology choices become obsolete sooner than projected.

Managed service providers delivering IT infrastructure, hosting or technical support combine service and product elements. Your Professional Indemnity needs covering both your advisory role and any failures in systems you manage or software you deploy on clients’ behalf.

Most professional indemnity for software developers effectively provides E&O-style coverage within the Professional Indemnity policy framework. The naming distinction matters less than ensuring your policy explicitly covers technology-specific risks.

Decision framework: Determining your coverage needs

If you build bespoke software for individual clients → Professional Indemnity with technology endorsements covers both service delivery failures and product defects adequately.

If you sell SaaS products to multiple end users → Ensure your Professional Indemnity explicitly covers product performance failures, not just service delivery. Some insurers exclude mass-market software or require separate endorsements for products sold to multiple users.

If you provide technology consulting without delivering code → Standard Professional Indemnity suffices, though technology sector endorsements provide more specific protection than general professional services cover.

If you develop and sell packaged software products → Check whether your Professional Indemnity covers product liability adequately or whether you need separate product liability insurance. Pure product sales sometimes sit outside Professional Indemnity scope.

If your software handles financial transactions or personal data → Verify your Professional Indemnity includes adequate cyber and data protection cover, or secure separate cyber insurance to fill gaps.

The real question isn’t whether you need “Professional Indemnity” or “Tech E&O” by name, it’s whether your actual policy wording covers the specific ways your technology work might cause client losses.

What professional indemnity for tech companies typically covers

Your policy responds when clients claim financial loss from your professional work. For technology businesses, common covered scenarios include:

Software bugs causing operational failures. Your invoicing module calculates incorrectly, costing your client £50,000 in under-billed revenue. Your inventory system fails during peak season, causing stockouts and lost sales. Your API integration breaks silently, corrupting data for three months.

Inadequate technical architecture. You specify infrastructure that can’t scale to actual usage, forcing expensive rebuilds. You recommend security measures that prove insufficient when attacks occur. You design database structures that create performance problems under production loads.

Missed project milestones with financial consequences. Your development delays prevent your client’s product launch, causing them to miss critical market windows. Your late delivery triggers penalty clauses in their contracts with their customers.

Failure to deliver contracted functionality. You build software that doesn’t meet agreed specifications, requiring costly remediation. You promise integration capabilities that prove technically infeasible, forcing your client to abandon planned workflows.

The policy covers your legal defence costs even when claims prove unfounded, plus compensation you become legally liable to pay. This matters because defending complex technology disputes typically costs £20,000 to £60,000 before reaching settlement.

Common scenarios where professional indemnity and cyber insurance overlap

Technology failures often trigger potential claims under multiple policies. Understanding overlap helps you structure comprehensive protection.

Data breaches involving client information you hold could trigger both Professional Indemnity and cyber insurance. If inadequate security in your development practices led to the breach, that’s Professional Indemnity territory. If the breach requires notification costs, forensic investigation and regulatory defence, cyber insurance responds. Both policies might pay different aspects of the same incident.

System downtime affecting multiple clients creates similar overlap. If your SaaS platform fails due to inadequate architecture, Professional Indemnity covers client losses from the outage. If you face cyber extortion or ransomware during the incident, cyber insurance provides separate protection.

Third party data breaches caused by your software could trigger your Professional Indemnity when clients claim your inadequate security design caused their breach. Their costs recovering from that breach come through your Professional Indemnity, whilst your own breach response costs might flow through cyber insurance if you also suffered a direct attack.

According to insurance market data, approximately 40% of technology Professional Indemnity claims involve some cyber element, making the overlap common rather than exceptional. Most brokers recommend both covers rather than relying solely on Professional Indemnity for technology businesses.

Coverage gaps between professional indemnity and other technology insurance

Professional Indemnity doesn’t cover everything technology companies need protecting against.

Physical damage and bodily injury require separate product liability insurance. If your software controls machinery and a malfunction causes physical injury, Professional Indemnity won’t respond. Product liability covers physical harm even when caused by software defects.

Your own business interruption and data loss need cyber insurance. Professional Indemnity protects clients from losses you cause them, it doesn’t protect your business from losses you suffer. When ransomware hits your systems or your data gets breached, that’s cyber insurance territory.

Intellectual property defence requires specific coverage. If someone claims your code infringes their patent, basic Professional Indemnity might not respond. IP litigation insurance provides defence funding and settlement cover for IP disputes.

Warranty claims and contractual guarantees often fall outside Professional Indemnity scope. If you guarantee specific performance metrics and fail to deliver, that’s a contract breach rather than professional negligence. Some policies include limited contractual liability cover, many exclude it entirely.

The gap between what professional indemnity for SaaS companies covers and what comprehensive technology protection requires explains why most scale-ups carry multiple policies rather than relying on Professional Indemnity alone.

How US and UK markets differ in E&O and PI terminology

Understanding market differences helps when dealing with international clients or US-influenced procurement requirements.

US markets sell Errors and Omissions as a distinct product category separate from Professional Liability. Tech companies typically buy Tech E&O policies, whilst traditional professionals buy Professional Liability. The products differ in scope, exclusions and pricing.

UK markets bundle technology risks into Professional Indemnity policies with sector-specific endorsements. You’ll rarely find standalone Tech E&O products from UK insurers. Instead, you buy Professional Indemnity described as suitable for technology businesses.

This creates confusion when US clients require “E&O insurance” in contracts. Your UK Professional Indemnity policy provides equivalent cover, but you need your broker to confirm your Professional Indemnity satisfies E&O requirements. Most will provide letters confirming this, since the coverage is substantively similar despite naming differences.

International clients sometimes specify both E&O and Professional Indemnity requirements, not realizing UK markets treat them as the same thing. Don’t purchase two separate policies attempting to satisfy both requirements. One properly endorsed Professional Indemnity policy covers both supposed needs.

What professional indemnity for tech companies excludes

The policy won’t respond to several common technology scenarios.

Deliberate acts and dishonesty void coverage. If you knowingly deliver inadequate code, deliberately introduce vulnerabilities or make fraudulent claims about capabilities, insurance won’t protect you.

Prior known circumstances aren’t covered. If you’re aware of a defect, client complaint or potential claim when purchasing or renewing cover, that circumstance is typically excluded. This makes immediate disclosure of potential issues essential at renewal.

Betterment and improvement costs often fall outside cover. If fixing your defective work requires upgrading the client’s systems beyond original specifications, the improvement element isn’t covered. Only costs restoring them to the originally contracted state are included.

Fines and penalties from regulators typically aren’t insurable under UK law. Whilst defence costs for regulatory investigations are often covered, the fines themselves usually aren’t. This matters for businesses where ICO penalties or sector-specific regulatory fines could arise from work quality.

Understanding professional indemnity exclusions helps you structure contracts and manage client expectations around what insurance actually protects.

External Resources

British Computer Society (BCS) – Code of Conduct. https://www.bcs.org/membership-and-registrations/become-a-member/bcs-code-of-conduct/. Chartered professional body for IT, sets ethical and professional standards for UK IT professionals.

Lloyd’s of London – Market Bulletins. https://www.lloyds.com/market-resources/market-bulletins. World’s specialist insurance market, publishes authoritative market data and technical bulletins.

National Cyber Security Centre (NCSC) – Secure Development Collection. https://www.ncsc.gov.uk/collection/developers-collection. UK government authority on cyber security, provides technical guidance for developers.

ISO – Software Quality Standards (ISO/IEC 25010). https://www.iso.org/standards.htmlInternational standards body, defines software quality characteristics used by underwriters.

 

Simplify Stream provides educational content about business insurance for UK companies, especially those with high growth business models that require specialist insurance market knowledge. We don't sell policies or provide regulated advice, just clear explanations from people who've worked on the underwriting and broking side.