In the world of professionalism and business, signed contracts are essential. When servicing clients and customers, contracts establish clear requirements and expectations. However, when those expectations aren’t met and a breach of contract takes place, one or both parties may be susceptible to a lawsuit. Protecting yourself from a breach of contract lawsuit is essential. But does tech insurance cover a breach of contract? Here’s what you need to know.
What is a breach of contract?
A breach of contract takes place when one party of an agreement doesn’t meet the requirements of expectations that were previously agreed upon. A contract can be breached by either the individual providing the goods or services or by the individual receiving them. Failure to deliver payment, missing a deadline, or the inability to provide goods or services are all examples of a contract breach.
There are two types of contract breaches. Material and immaterial.
Material breaches take place when a party fails to honor a contract, therefore causing financial loss to the other party. An immaterial breach, on the other hand, takes place when there is no evidence of loss or harm. For example, if a business provides a report a day late and misses a deadline. While this is technically a breach, there will likely be no harm as a result.
What to do if your client sues for breach of contract
While most states require that proof of loss is offered to sue for a breach of contract, court fees and additional costs can quickly add up if you are the subject of a lawsuit.
If you are sued for breaking a contract, you will likely need to appear in a small claims court or trial court. Depending on how the contract was breached, a lawsuit may be focused on different types of damages. Examples include:
- Restitution – This is focused on returning any payment made by your client
- Compensatory Damages – Paying clients for any funds they may have lost in response to your broken contract
- Specific Performance – Where you are required to follow through on your contractual obligations when finances are not an appropriate substitute
- Punitive Damages – Additional fees as punishment for breaking your contract
Additionally, you may be required to pay for the other parties’ court fees, depending on the circumstances of your breach of contract, as well as in which state you are located.
Does tech insurance cover contract breaches?
Given that the consequences of a contract breach can quickly add up, it’s important to protect your company from potential lawsuits that could arise from situations out of your control. Keep in mind that tech insurance does NOT cover an intentional breach of contract.
However, when contracts are broken due to errors and omissions (E&O) a professional liability insurance policy or tech E&O insurance could help provide financial relief. Examples include:
- Work-related errors
- Services that cannot be delivered due to circumstances out of your control
- Missed deadlines
- Budget issues
- And much more
One of the best ways to protect yourself from breach of contract lawsuits is to invest in tech E&O insurance from a company like Post Insurance. We work with our clients to provide coverage tailored to their individual risks. Contact us today to get a quote and find out how we can help protect you and your business!