Top 10 Reasons Software Companies Face PI Claims

Software businesses live and die by trust. Clients rely on you to deliver working systems, protect data, hit deadlines, and provide advice they can act on. When something goes wrong, the financial impact can be immediate: lost revenue, operational downtime, regulatory exposure, and reputational damage.

That’s why Professional Indemnity (PI) claims are so common in the software world. PI insurance is designed to respond when a client alleges your professional service or advice caused them a loss—whether the issue is a coding error, a missed requirement, or a failure to meet contractual obligations.

Below are the top 10 reasons software companies face PI claims, with practical examples and steps you can take to reduce risk.

1) Scope creep and unclear requirements

Many PI disputes start before a single line of code is written. If requirements are vague, incomplete, or constantly changing, it becomes difficult to prove what was agreed—and even harder to demonstrate that you delivered it.

Common triggers include:

• No signed statement of work (SoW)

• Requirements captured in informal emails/Slack messages

• “Assumptions” not documented

• Client stakeholders disagreeing internally

Typical claim scenario: The client says the delivered system “doesn’t do what we asked,” refuses to pay, and claims the cost of rework and delays.

Risk reduction: Use a clear SoW, acceptance criteria, and a change control process that prices and schedules changes.

2) Missed deadlines and project delays

Software projects are often tied to critical business events: product launches, regulatory deadlines, seasonal peaks, or contract renewals. When delivery slips, the client may argue they lost sales, incurred extra staffing costs, or breached their own commitments.

Delays can be caused by:

• Underestimating complexity

• Dependency on third-party APIs

• Client delays in providing access, data, or sign-off

• Poor sprint planning or resourcing

Typical claim scenario: A delayed deployment causes the client to miss a launch window. They pursue you for lost profit and additional costs.

Risk reduction: Build realistic timelines, document dependencies, and confirm what happens if the client delays approvals or access.

3) Defects, bugs, and system failures in production

No system is bug-free, but clients often expect “enterprise-grade” reliability—especially when software supports payments, healthcare, logistics, or safety-critical operations.

PI claims can arise from:

• A defect that corrupts data

• A release that causes downtime

• A bug that miscalculates pricing, tax, or payroll

• A failure to handle edge cases or peak loads

Typical claim scenario: A bug causes incorrect invoices to be issued. The client claims remediation costs, refunds, and reputational harm.

Risk reduction: Strengthen QA, automated testing, release management, and incident response processes.

4) Inadequate testing and quality assurance

Even when the code is “correct,” insufficient testing can lead to failures in real-world conditions. Clients may argue you were negligent for not applying reasonable testing standards.

Common gaps include:

• No documented test plan

• Limited user acceptance testing (UAT)

• No performance/load testing

• No regression testing before releases

Typical claim scenario: A system works in staging but fails under real traffic. The client claims business interruption losses.

Risk reduction: Agree testing responsibilities, document test evidence, and define UAT sign-off in writing.

5) Poor documentation, handover, or training

A client may accept delivery but struggle to run, maintain, or scale the solution. If documentation is missing or unclear, the client may claim they were left with a system they cannot safely operate.

This is especially common with:

• Bespoke internal tools

• Complex integrations

• Systems requiring admin workflows

• Projects handed over to in-house teams

Typical claim scenario: The client’s team misconfigures the system due to unclear documentation, leading to downtime. They allege your handover was inadequate.

Risk reduction: Include documentation deliverables in scope, provide structured handover sessions, and capture training attendance and materials.

6) Security failures and negligent advice (often alongside cyber incidents)

Cyber incidents don’t always lead to PI claims, but many do—particularly when the allegation is that your professional service fell below expected standards.

Examples include:

• Insecure authentication or access controls

• Poor encryption choices

• Misconfigured cloud environments

• Failure to patch known vulnerabilities

• Inadequate security advice or risk warnings

Typical claim scenario: A client suffers a breach and alleges your development practices or security guidance were negligent.

Risk reduction: Follow secure development practices, document security decisions, and be careful with guarantees (e.g., “fully secure”).

7) Integration failures and third-party dependency issues

Modern software is rarely standalone. It depends on payment gateways, CRMs, identity providers, mapping services, shipping platforms, and more.

PI disputes can occur when:

• An integration is unstable or poorly implemented

• API limits or changes break functionality

• Data mapping causes errors

• The client assumes third-party tools will behave in a certain way

Typical claim scenario: A key integration fails during peak trading. The client claims lost revenue and blames your implementation.

Risk reduction: Document third-party dependencies, clarify what you control, and set realistic expectations around third-party uptime.

8) Data loss, data corruption, or migration errors

Data is often the most valuable asset in a software project. Claims can arise when data is lost, corrupted, duplicated, or incorrectly migrated.

High-risk areas include:

• Legacy system migrations

• ETL pipelines

• Database schema changes

• Backups and restore procedures

Typical claim scenario: A migration duplicates customer records and breaks reporting. The client claims remediation costs and operational disruption.

Risk reduction: Use staged migrations, reconciliation checks, rollback plans, and documented backup/restore testing.

9) Misrepresentation of capability or overpromising

Sales and delivery teams sometimes unintentionally oversell what the product can do, how quickly it can be delivered, or how “out of the box” it will be.

PI claims can follow when:

• A feature is promised but not delivered

• Performance claims aren’t met

• Compliance claims are made without evidence

• “Guaranteed” outcomes are implied

Typical claim scenario: The client buys based on a demo and statements that later prove inaccurate. They allege misrepresentation and seek damages.

Risk reduction: Keep proposals accurate, document assumptions, and avoid guarantees unless you can prove them.

10) Contract disputes, liability clauses, and unclear responsibilities

Even when the technical work is solid, contract wording can create PI exposure. If responsibilities aren’t clear, the client may argue you were responsible for outcomes you didn’t control.

Common contract pitfalls include:

• No limitation of liability (or an unworkable one)

• Broad warranties

• Unclear acceptance/sign-off process

• Ambiguous “fitness for purpose” language

• Vague support and maintenance obligations

Typical claim scenario: A client claims consequential losses that far exceed the project value, and the contract doesn’t cap liability.

Risk reduction: Use well-drafted contracts, define acceptance, limit liability appropriately, and align insurance limits with worst-case exposure.

Practical steps to reduce PI claim risk (without slowing down delivery)

You can’t remove risk entirely, but you can reduce the likelihood of disputes and strengthen your position if a claim arises.

• Use clear paperwork: SoW, change control, acceptance criteria, and sign-off.

• Document decisions: Especially around security, performance, and scope trade-offs.

• Improve QA discipline: Automated tests, code reviews, and release gates.

• Clarify responsibilities: Who provides data, access, approvals, and ongoing maintenance.

• Manage client expectations: Be careful with timelines and guarantees.

• Keep an audit trail: Tickets, meeting notes, approvals, and UAT evidence.

Why PI insurance matters for software companies

PI claims can be expensive even when you did nothing “wrong.” Legal defence costs, expert reports, and settlement negotiations can quickly become a major distraction for founders and delivery teams.

Professional Indemnity insurance can help cover:

• Legal defence costs

• Compensation/settlement amounts (where covered)

• Claims arising from negligence, errors, or omissions

• Allegations of breach of professional duty

The right policy should reflect your actual risk profile: contract values, client sectors, data sensitivity, and whether you provide advice, development, hosting, or managed services.

Final thoughts

Software companies face PI claims for a simple reason: clients depend on your work to run their business. When expectations, contracts, or delivery processes aren’t tightly managed, disputes can escalate quickly.

If you’re a software business reviewing your PI exposure, focus on the fundamentals: clear scope, strong QA, documented decisions, and contracts that match how you actually deliver.

Need help reviewing your PI insurance for software development, SaaS, IT consultants, or managed service providers? Speak to a specialist broker who understands technology risk, contracts, and UK regulatory expectations.