Who is an IT Professional?
Anyone who gives advice and/or services of a skilful nature according to an established discipline might be regarded as a professional. If you are a company or contractor offering your services within a professional industry you are required to perform these duties to a reasonable level of care and skill, considered ‘standard’ within that profession. The IT Industry is one such industry. Litigation can arise from an actual or alleged failure to fulfil these standards of performance which cause a third party to suffer a loss whether it be economic, property or injury-based. Furthermore there are ‘common law’ liabilities and also contractual liabilities that you sign into when entering a commercial relationship.
Why is there risk?
Businesses are constantly trying to improve themselves to get any competitive advantage available. Gains can be made in streamlined processes – networking, intranets and extranets, upgrading hardware or software and e-commerce solutions; a lot of business is very IT-dependent and IT projects can offer a core business solution. While this means an expanding pool of work for the IT industry, this reliance on IT can also cause the environment to very quickly turn hostile when things do not go as planned. In today’s litigious society where project costs are high, businesses often attempt to pursue damages against anyone they think may be at fault.
The cause of a dispute may be something as simple as a miscommunication in the needs of the client, reliance on advice as to the performance of software/hardware, reliance on the suitability of a product, or the capability for it to be integrated into existing systems. Even if you are not in the wrong and even if the software or hardware solution functions correctly, if the client believes your advice was inadequate or the system was meant to do something different then a dispute can arise. Under these circumstances the law may often look to protect the consumer as they relied upon you acting in your professional capacity to provide them what they required so it is important to ensure you are adequately protected.
Examples of IT Liability Claims
A system upgrade had one inadequate networking component. The system subsequently crashed taking 24 hours to repair and the client was seeking $30,000 for lost business.
Lost Profits; Failure to meet Expectations
A large firm engaged a software upgrade, which did not meet expectations. While the project cost was only around $200,000 the client sought over $2m in loss due to lost business.
Electronic Data Loss
While performing hardware services, an IT contractor failed to insert a backup tape properly. There was a blackout and because the backup failed one day of data was lost.
Breach of Trade Practices Act
A client without IT knowledge engaged a software developer to provide a solution for recording estimates and producing invoices. The hardware and software supplied failed to provide these capabilities and the developer was alleged to have engaged in misleading and deceptive conduct.
A telecommunications company was sued after a hacker was able to access a company’s telephone system and maliciously divert communications from the intended recipient, causing lost business over $300,000.
A reseller was sued by numerous customers after providing misleading and inadequate advice as to the service, functionality and coverage of various IT and Telecommunications products.
IT Liability Insurance
An IT Liability policy provides a combined package of both Professional Indemnity (PI) and Public/Products Liability cover. The policy has been specifically designed by the Insurance industry to cater for IT Professionals by acknowledging the blurred line between products and services in the IT Industry – for example when is customising software for a client a service and when does it become a product? By combining both covers there is no ambiguity as to the nature of a potential dispute between your PI and Liability insurers; your insurer is in there to protect you either way as they take on all your relevant business risks.
The Professional Indemnity section of the policy covers you for any Civil Liability arising out of your professional service or advice. This can include but is not limited to:
- Acts, Errors or Omissions you make
- Allegations of breaching the Trade Practices Act
- Loss of Documents or Data
- Intellectual Property disputes
The cover provides insurance for the third party damages, costs and expenses. It also provides legal defence and investigation costs which is not only an economic relief but can also save you from a lot of time and hassle were you to manage the dispute yourself. It is important to note that the policy is designed to protect the insured against any alleged civil liability. What this means practically speaking is that even if you have done nothing wrong a disgruntled client can still attempt to sue you and in turn your Insurer will still look to protect you on the basis of this allegation, even if it means appointing lawyers to simply dismiss the potential claim. These sorts of disputes are the kind of thing as a business owner you do not want to have to deal with yourself so the insurance policy definitely provides peace of mind in that respect.
The Public and Products Liability section provides cover for Personal Injury and Property Damage caused by you or by your product which can include goods you have supplied or assembled on-site. Electronic Data loss can be a significant exposure to some IT Professionals and under a standard Public Liability policy this is a blanket exclusion, however under an IT Liability policy it is covered.
What can we offer to you?
If you currently purchase IT Liability or Business Insurance which includes Public/Products Liability we would like to offer our services to review this for you. This can be either an immediate review or we can make a time to discuss with you when the policy is due for renewal. We would encourage any IT Professionals who currently buy Public Liability under Business or Office Insurance policies to consider upgrading to an IT Liability policy due to potential uninsured exposures such as Electronic Data losses and any Professional Service/Advice provided.
Find out what Austbrokers Countrywide can do for you.
For an obligation free insurance review, talk with one of our specialist brokers today to find out more.