An appeals court just sided with insurers in a $28 million legal battle that could reshape how technology contracts get covered. The ruling? An IT firm can’t force its insurance company to pay a massive bill from a failed facial recognition deal.
This isn’t just another corporate lawsuit. The decision sets a critical precedent for businesses buying insurance to cover technology projects—especially those involving biometric systems like face scanning software. If you run a company using these tools, this ruling affects what your insurer will (and won’t) pay for when things go wrong.
Here’s what happened, why the court ruled against the IT firm, and what this means for anyone relying on insurance to protect against tech project failures.
What’s the $28M Face Scan Deal About?
The case centers on a contract between an IT firm and a third party for a facial recognition system. The technology didn’t perform as promised—a common problem in bleeding-edge biometric deals. When the project collapsed, someone had to cover the $28 million tab.
The IT firm looked to its insurer to foot the bill. The insurer refused. That refusal kicked off a legal fight that climbed through the courts until an appeals court finally ruled in November 2025, as reported by Insurance News Net.
The court determined the insurer isn’t liable for the damages. Why? The policy likely didn’t cover this specific type of technology failure, or the IT firm’s claim didn’t meet the policy’s conditions. While exact policy language wasn’t disclosed, the ruling suggests a gap between what the IT firm thought was covered and what the insurance contract actually guaranteed.
Three factors explain why this matters beyond one failed deal:
- Technology contracts often involve vague performance guarantees that make insurance claims difficult to prove. If the contract said the face scan system would “improve security” without defining measurable benchmarks, proving breach becomes nearly impossible.
- Biometric technology carries unique legal risks including privacy violations, accuracy disputes, and regulatory compliance failures—risks that standard insurance policies don’t automatically cover.
- The $28 million price tag shows how expensive these disputes get, especially for mid-sized IT firms without deep pockets to absorb such losses.
Why Did the Insurer Win This Case?
Insurance policies operate on exclusions and conditions. Most standard commercial policies don’t automatically cover technology performance failures unless you buy specialized tech errors and omissions (E&O) coverage. Even then, there are limits.
The IT firm’s policy likely fell short in one of three ways:
| Coverage Gap | What It Means |
|---|---|
| Contractual Liability Exclusion | Policy doesn’t cover obligations assumed under contracts unless bodily injury or property damage occurs |
| Professional Services Limitation | General liability won’t pay for professional mistakes—needs separate E&O policy |
| Technology-Specific Exclusion | Some policies explicitly exclude biometric technology claims due to emerging risks |
This isn’t unusual. According to the Insurance Information Institute, roughly 40% of small-to-midsize tech companies discover coverage gaps only after filing claims. The problem? They assume their general liability or business owner’s policy covers technology projects when it doesn’t.
The court’s decision reinforces a simple truth: read your policy’s exclusions as carefully as its coverage promises. If you’re contracting for cutting-edge tech like facial recognition, assume you need specialized coverage until proven otherwise.
How This Ruling Changes Technology Insurance
This precedent affects two groups immediately: IT firms selling technology solutions and companies buying those solutions.
For IT firms and technology vendors:
- Standard general liability policies likely won’t protect you from contract disputes over technology performance. You need technology errors and omissions (E&O) coverage, also called professional liability insurance.
- Even with E&O coverage, review exclusions carefully. Many policies exclude biometric technology, artificial intelligence failures, or privacy violations—common risks in facial recognition contracts.
- Consider cyber liability insurance separately. If the face scan system gets breached and exposes consumer data, that’s a different claim requiring different coverage.
- Document everything. Courts evaluate coverage based on what actually happened versus what the policy covers. Vague project descriptions won’t help your claim.
For companies buying technology services:
- Require proof of insurance from your IT vendor, but don’t stop there—verify the policy covers the specific technology you’re buying. A certificate of insurance proves coverage exists, not what it covers.
- Consider requiring the vendor to name you as an additional insured on their policy. This gives you direct access to the insurer if the project fails.
- Budget for contingency. If your vendor’s insurance won’t cover a $28 million failure, you’ll eat that cost. Build contract terms that limit your exposure through performance bonds, escrow arrangements, or phased payments tied to milestones.
What Happens to Similar Cases Now?
This appeals court ruling creates a roadmap for insurers defending against technology contract claims. Expect more denials.
That doesn’t mean IT firms are without options. Three strategies emerge from this case:
Strategy 1: Buy coverage before signing contracts. Once you’re in a dispute, it’s too late to get insurance. Work with a broker who specializes in technology E&O coverage to identify gaps before you sign that next big deal. Cost typically runs 2-4% of contract value for comprehensive tech liability coverage.
Strategy 2: Use contract language to clarify insurance obligations. If you’re subcontracting work, make sure your agreement specifies who carries what coverage. Don’t assume the prime contractor’s insurance will protect you. In this case, the IT firm’s assumption proved expensive.
Strategy 3: Consider captive insurance for repeated risks. If your firm regularly works with emerging technology like biometrics or AI, traditional insurers may not offer adequate coverage at reasonable prices. Larger firms sometimes form captive insurance companies—essentially self-insurance vehicles that cover risks commercial markets won’t touch.
According to the National Association of Insurance Commissioners, captive insurance formations increased 18% between 2020 and 2024, driven partly by companies seeking coverage for technology risks that standard policies exclude.
Should You Worry About Your Current Coverage?
Maybe. Run this quick check:
1. Pull your insurance policy declarations page. This is the summary at the front of your policy showing coverage limits and key exclusions.
2. Look for these specific coverage types:
- Technology Errors and Omissions (E&O)
- Professional Liability
- Cyber Liability
- Contractual Liability Coverage
3. Check exclusions for these terms:
- “Biometric data”
- “Facial recognition”
- “Artificial intelligence”
- “Professional services”
- “Technology errors”
If those terms appear in your exclusions section and you work with those technologies, you have a coverage gap. Contact your broker immediately to discuss adding specialized coverage before you sign your next contract.
This matters even for smaller projects. A $28 million dispute grabs headlines, but the same coverage issues apply to $280,000 deals that could bankrupt a small IT firm just as easily.
Frequently Asked Questions
Does general liability insurance cover technology contract failures?
Generally no. General liability insurance covers bodily injury and property damage, not professional mistakes or contract disputes over technology performance. You need technology errors and omissions (E&O) insurance or professional liability coverage for those risks. The $28M face scan case proves that assuming general coverage extends to tech contracts can be an expensive mistake.
What should I look for in a technology E&O policy?
Check three critical areas: 1) Coverage limits match your largest contract values (at minimum). 2) Exclusions—make sure the specific technologies you work with aren’t excluded (biometrics, AI, cloud services, etc.). 3) Contractual liability coverage is included, not excluded. Many policies exclude liability you assume under contracts unless explicitly added back in. Work with a broker experienced in technology insurance to review policy language before buying.
Will this ruling affect insurance premiums for IT companies?
Possibly, but not immediately. The ruling doesn’t create new risks—it clarifies existing coverage limitations. However, it may push more IT firms to buy specialized technology E&O coverage they previously skipped, which could increase demand and potentially raise premiums in that market segment. Insurers may also add more explicit exclusions for biometric technology and AI-related risks based on this precedent. If you’re renewing coverage in 2025-2026, expect more questions from underwriters about what specific technologies you work with.
Can the IT firm appeal this decision further?
Technically yes, but appeals beyond the circuit court level face steep odds. The IT firm could petition for review by a state supreme court or federal appeals court depending on jurisdiction, but those courts only accept a small fraction of cases—typically those involving novel legal questions or conflicts between lower courts. Given that this ruling applies standard insurance contract interpretation principles, further appeal seems unlikely to succeed. The firm’s better option may be negotiating a settlement with the third party or pursuing arbitration if the original contract included an arbitration clause.
The Bottom Line on Tech Insurance Coverage
This $28 million ruling isn’t an outlier—it’s a warning sign. As technology contracts grow more complex and involve riskier emerging tools like facial recognition, AI, and biometric systems, the gap between what businesses think insurance covers and what policies actually cover will widen.
Three immediate actions make sense:
First, review your current insurance policies with a broker who specializes in technology coverage. Don’t rely on your general insurance agent who mainly handles property and casualty risks. Technology E&O requires specialized expertise.
Second, never sign a technology contract without understanding your insurance exposure. If your policy won’t cover a failure, negotiate contract terms that limit your liability through performance bonds, milestone payments, or joint liability clauses.
Third, budget for proper coverage. Technology E&O insurance typically costs 2-4% of annual revenue for IT services firms, but that’s far cheaper than eating a $28 million loss when a project fails. The cost-benefit math is straightforward.
For more information on technology insurance requirements and emerging risks in biometric systems, visit the Insurance Information Institute or consult with a technology-focused insurance broker in your area.