$2M Professional Liability (E&O) Insurance for Software Developers

For software developers whose client contract asks for $2M: it usually means $2M per claim and $2M in total for the policy year, often written as Technology E&O.

What does a $2M requirement mean for software developers?

Professional Liability (E&O, short for Errors and Omissions) covers claims that your work caused a client a financial loss. Software developers usually buy a form called Technology E&O, often combined with Cyber (coverage for data breaches and computer security incidents), rather than the general form used by other service firms. A $2M clause in a master service agreement (MSA) might read:

• Per claim and aggregate: the most the policy pays for one claim, and for all claims in a policy year.
• Claims-made: the policy covers claims made and reported while it is active, for work done on or after the retroactive date.
• Three years after delivery: bugs often surface months after go-live, so coverage must be active when the claim arrives.

Who asks software developers for $2M?

Many small dev shops start at $1M. $2M tends to show up when the client is larger or depends on your code:

• Enterprise clients whose MSA sets one Technology E&O and Cyber minimum for every software vendor.
• Mid-market companies hiring you to build a core system, such as billing.
• Agencies and prime contractors that pass their own client's limits down to you.
• Fintech and e-commerce clients where a defect can move money or stop sales.
• Healthcare clients with sensitive data.
• Public agencies buying custom software or integrations.

How is $2M built?

Many developers meet $2M with one primary policy (the policy that pays first) at $2M/$2M. Some clients accept a $1M primary plus a $1M excess layer. An excess layer is a second policy that pays after the first is used up. It should follow form, which means it uses the primary policy's terms and retroactive date. Confirm with the client that this meets the clause. A commercial umbrella (extra liability coverage that sits above your general liability policy) almost never covers Professional Liability, so it usually does not count.

If you buy Technology E&O and Cyber together, check whether they share one $2M limit. Some MSAs ask for $2M of each (see Professional Liability vs. Cyber). If the contract asks for $3M, that usually means a larger primary or excess layers and often a broker. Morrow can help you find it.

What will underwriters ask for?

An underwriter is the person at the insurer who decides whether to offer coverage and on what terms. Expect questions on:

• What you build (custom apps, SaaS, integrations, mobile), and the revenue share of each.
• Your largest clients, their industries, and your biggest pending contract.
• Whether your code handles payments, health data or systems that must stay online.
• Your process: written statements of work (SOWs, the documents that set out each project's scope), testing, code review and change control.
• Your standard client agreement, including any limitation of liability clause (a cap on what you owe a client), and freelancers.
• Security controls such as multifactor authentication (a second login step), plus prior claims and your retroactive date.

What affects the cost?

• What your software does. Code that moves money or holds health data usually costs more.
• Revenue and contract size. Bigger contracts mean bigger losses.
• Contracts and process. Clear SOWs and sign-off steps can help.
• Claims history and controls. Prior claims or thin security controls can raise price or narrow options.
• Retention and structure. Retention is what you pay per claim before the policy pays, similar to a deductible. A higher one usually lowers premium. Separate Technology E&O and Cyber limits may cost more than one shared limit.

Frequently asked questions

Is $1M/$2M enough if my contract says $2M?

Usually not, because a $1M/$2M policy pays only $1M on one claim. Request new quotes through Morrow, either for a new $2M primary policy or for an excess layer above your $1M. Morrow can ask each insurer to keep your retroactive date and prior acts coverage (coverage for work you did before the new policy starts) where the market allows. Report anything that could become a claim to your current carrier before you switch.

Does Technology E&O cover a missed deadline as a software developer?

It may, if the client says the delay came from an error in your services and caused them a financial loss. Policies differ, and many exclude guaranteed results and refunds of your own fees.

Can my client be added as an additional insured on my Professional Liability?

Usually not. Additional insured means adding someone to your policy so it protects them too. Professional Liability is written around your own services, and clients usually cannot be added. Some Technology E&O policies may offer a client limited protection, usually only for liability arising from your services, but wording varies. If your contract requires it, send it to Morrow to check before you buy. A certificate of insurance shows your limits and retroactive date, but it does not by itself add anyone to the policy.

This article is general information, not legal advice or a coverage determination. Coverage depends on the actual policy wording, carrier underwriting and your contract terms.