Errors And Omission In The Context Of E-Commerce Sales And Service Contracts

By: Stephen P. Pazan, Esquire

Originally published: June 27, 2003

The E-Commerce boom and subsequent shake-out left a lot of broken.com's in its wake. Regardless, since "E-Commerce" is here to stay, coverage counsel will increasingly be called upon to resolve novel disputes under both traditional insurance policies and recently packaged insurance products, particularly in the area of software sales and service. Many of these products will be errors and omissions policies written on a claims-made basis. There are surprisingly few New Jersey cases dealing with professional liability policies. See, accord, Kenney and Lattal, New Jersey Insurance Law, 15-4 at 528 (2000). Observant coverage counsel may find value for clients in the debris of broken or unfulfilled contractual obligations. Success may depend on whether counsel can articulate a distinct error or omission in the context of software sales and computer services.

An example of the coverage provided in this area is found in Chubb's Computer Software and Services Errors and Omissions Policy (Form 80-02-2013 (Ed.4:94). The insurance agreement provides that:

"Subject to the applicable limits of insurance, we will pay damages the insured becomes legally obligated to pay for any claim arising out of a negligent act, error or omission, to which this insurance applies, by or on behalf of the insured: in the performance of or failure to perform electronic data processing; in the performance of or failure to perform other computer services; or in the failure of software products to perform the function or serve the purpose intended."

CNA provides similar coverage in its "E-pack for Private Companies" program. The Professional Services Endorsement (G-128180-A2 (Ed. 10-00)), which is part of the Miscellaneous Professional Liability Coverage Part, defines covered "Technology Services" to include the following:

Systems analysis, systems conversion and systems integration;

Designing, developing, programming, distributing, installing, licensing, servicing, and maintaining computer hardware and software, including web-based applications, websites and online services;

Education and training services in the use of computer hardware and/or software;

Hosting and marketing of websites and online services;

Services as an internet access provider, search engine or web browser;

Development, design and maintenance of chat rooms, email services or bulletin board;

Computer consulting;

Management and operation of a third-party information services department;

Data processing in connection with any of the above listed services."

The Chubb policy defines electronic data processing as "those activities usual to the processing of data or records of others." Chubb defines "other computer services" as "electronic data processing...