Understanding the differences between Errors & Omissions and AI insurance is crucial for startups to select the right coverage that aligns with their specific technology risks and business model.

Coverage and common claims

Errors & Omissions insurance protects against professional mistakes, service failures, and negligence claims, such as when software bugs prevent customer transactions or service failures cause financial harm to clients. AI insurance is a specialized E&O policy that specifically covers AI-related risks including algorithmic bias, AI product errors, and intellectual property infringement claims from AI-generated content.

When you need each policy

E&O insurance is recommended as soon as any tech startup launches their product and begins customer interactions, regardless of whether AI is involved in their operations. AI insurance is essential for startups where artificial intelligence is integral to their product offerings, such as AI-powered analytics tools, recommendation engines, or content generation platforms.

Typical coverage limits

Both policies typically provide coverage for legal defense costs, settlements, and judgments up to the policy limits, with AI insurance also covering customers' legal fees in certain scenarios. The specific limits vary based on company size, risk profile, and industry, but both policies are designed to protect against potentially costly professional liability claims.

Understanding E&O coverage scope

Errors & Omissions insurance serves as a broad safety net for technology companies facing claims related to their professional services or products. The coverage extends beyond simple mistakes to include allegations of negligence, even when the company isn't actually at fault. This makes it particularly valuable for startups that may face frivolous lawsuits or claims arising from complex technical issues that are difficult for clients to understand.

AI insurance: Specialized protection for modern risks

AI insurance addresses the unique challenges that come with deploying artificial intelligence systems in commercial applications. Unlike traditional E&O coverage, AI insurance specifically accounts for risks like algorithmic discrimination, where unintentional biases in AI models could lead to discriminatory outcomes and subsequent legal action. The policy also covers intellectual property disputes that may arise when AI systems inadvertently use copyrighted material in their outputs.

Risk mitigation and prevention

Both insurance types work best when combined with proactive risk management strategies. For E&O coverage, this includes thorough product testing and clear client communication, while AI insurance benefits from continuous model monitoring and diverse training data. Companies should view these policies not as replacements for good practices, but as essential backup protection when prevention efforts fall short.

The scenarios described are offered only as examples. Coverage depends on the actual facts of each case and the terms, conditions and exclusions of each individual policy. Anyone interested in the above product(s) should request a copy of the standard form of policy for a description of the scope and limitations of coverage.

What does errors and omissions insurance not cover?

Errors and omissions insurance typically does not cover intentional wrongdoing, criminal acts, bodily injury or property damage, employment practices violations, cyber security breaches (unless specifically added), contractual penalties, or business income losses. The coverage is specifically designed for professional mistakes and negligence claims, so it excludes coverage for deliberate acts, general liability issues, and certain specialized risks that require separate insurance policies.

What are some examples of errors and omissions?

Common examples of errors and omissions include software bugs that prevent customer transactions, data migration errors that cause client data loss, missed project deadlines that result in financial harm to clients, incorrect advice or recommendations that lead to poor business decisions, failure to deliver promised features or functionality, security vulnerabilities that weren't properly addressed, and miscommunication about project scope or deliverables. These situations can result in significant financial losses for clients and subsequent liability claims against the service provider.

What does AI insurance coverage include?

AI insurance coverage includes protection against algorithmic bias and discrimination claims, errors in AI-generated outputs or recommendations, intellectual property infringement from AI-created content, data privacy violations related to AI processing, failure of AI systems to perform as promised, and liability for decisions made by autonomous AI systems. The coverage also typically includes legal defense costs, settlements, and judgments, and may even cover customers' legal fees in certain scenarios involving AI-related disputes.