When Your Client Requests Insurance as the Software Contractor 

⇒ Why Clients Require Professional Liability Insurance for IT Contractors 

Delivering a software project often involves risks and technical complexities that the client must take into account. For this reason, clients evaluate how to reduce financial exposure if something goes wrong during the project. 

Here are common reasons why a client may require the contractor to carry IT Professional Liability (Errors & Omissions) Insurance: 

• A malfunctioning software product may affect many users, leading to multiple claims with substantial financial impact. 
• A vulnerability caused by the contractor may result in a personal data breach. 
• If the product is used in multiple countries, claims from users in higher-standard markets are likely to be significantly larger. 

Almost no contractor is capable of covering such large claims independently. This is why specialized insurance policies with adequate limits (often in the millions) are used to protect both the contractor and the client. 

⇒ Contractual Requirements in Software Development Agreements 

Project agreements often include a clause obligating the contractor to present an active IT Professional Liability Insurance policy. These clauses usually specify: 

• the required insurance limits, and 
• the level of deductible/self-insured retention. 

⇒ What Is Professional Liability Insurance for IT Companies? 

At its core, this insurance covers errors and omissions (E&O) in the contractor’s performance up to the policy limits. It is a specialized form of liability insurance that responds to claims arising from professional mistakes, negligence, or failures in service delivery. 

Although certain policies may include additional elements, Professional Liability Insurance is not the same as General Liability Insurance, which covers bodily injury or property damage. Professional Liability specifically covers financial loss resulting from errors, omissions, or negligence in service performance. 

⇒ If Your Company Is Asked to Provide Project-Specific Professional Liability Insurance 

A project-specific policy has distinct characteristics: 

• The project name is listed in the policy, and the insurer’s responsibility is limited strictly to claims arising from that specific project. 
• It will not cover contractual liability under the agreement, but rather the errors and omissions associated with project execution. 
• Presenting such a policy significantly strengthens your negotiation position, improving your chances of winning the contract. 

Common limit requirements for IT Professional Liability Insurance range from one to five million euros or dollars. 

⇒ Why It Is Better to Have an Annual Company-Wide Professional Liability Policy Instead of Project-Specific Insurance 

An annual Professional Liability policy tied to the company’s overall activity has significant advantages: 

• It covers all future projects under a single, centralized insurance solution, saving time and administrative effort. 
• It provides added credibility and trust when negotiating with clients.