IT Contractors Beware: New TechInsurance Guidelines Raise Awareness of Legal Liability for Network Outages

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TechInsurance outlines three-pronged approach to help IT consultants and contractors protect their assets from costly legal action.

Businesses tend to underestimate their need for insurance, expecting that the quality of their work and contracts will shield them from liability.

In the last month, computer network outages at American Airlines and the Chicago Board Options Exchange have wrought havoc on airline travelers and options traders, causing cancelations or delays of nearly 2,000 flights and a complete shutdown of trading for several hours. Both incidents resulted in a significant hit to the affected companies’ revenue and credibility.

While no lawsuits in connection with either event have yet been announced, incidents like this leave affected parties looking for someone to blame, and a party from which to recover lost compensation for immediate and long-term damage. Today, TechInsurance, the nation’s leading online insurance provider for small information technology businesses, issued guidelines for small IT practices, which can be drawn into costly lawsuits as part of the exploration into the cause of a system failure.

From the perspective of the companies affected by network outages, an all-inclusive approach to naming liable parties makes sense: by naming every contractor or consultant involved in a project, a lawsuit has a better chance of finding the responsible party. From the perspective of an independent contractor or small IT firm, though, this approach can translate to an expensive legal headache.

“Businesses tend to underestimate their need for insurance, expecting that the quality of their work and contracts will shield them from liability,” said Ted Devine, CEO of TechInsurance. “However, regardless of whether the firm is ultimately liable or not, they will have to pay hefty legal defense fees. And that doesn’t include the cost of time lost preparing for the suit and not serving other clients or pitching new projects.”

To prevent an unexpected lawsuit from derailing business operations and draining a company’s reserve funds, TechInsurance recommends implementing the following risk management measures:

1.    Use contracts with every client, for every project. Legally binding contracts provide an essential baseline of protection for technology contractors and consultants. While they should not be regarded as a silver bullet for eliminating legal liability, they are an effective way to limit the potential liability costs an IT professional might face.

2.    Invest in adequate Professional Liability (Errors & Omissions) Insurance – and keep it active. In the event of a lawsuit, Professional Liability coverage will pay for both the legal costs associated with mounting a defense in court and the settlement or judgment costs, if any are assigned. Before purchasing a Professional Liability policy, small IT firms and contractors should consult with an agent familiar with IT risks to identify appropriate coverage levels and ensure that the policy doesn’t exclude necessary coverages. In addition, IT business owners should know that most Professional Liability policies work on a “claims-made” basis, meaning that they must be active both when an incident occurs and when a claim is filed in order to offer benefits. This means that starting and stopping coverage is as effective as having no coverage at all.

3.    Be realistic about liability exposure. The incidents that affected AA and CBOE this spring are only two among many that occur each year. While not every software failure or breach is significant enough to make front-page headlines, even a relatively minor incident can lead to crippling legal expenses for a small business or independent contractor without adequate reserve funds or liability insurance.

While not all IT glitches are caused by human error (faulty hardware and power outages could just as easily be to blame), humans and their businesses are the only entities that can be targeted in lawsuits. Without adequate liability insurance in place, those lawsuits can translate to major financial losses for an IT firm.

To contact a TechInsurance representative to discuss your business and how it can be better protected, please call (800) 668-7020.

About TechInsurance

TechInsurance is the nation’s leading online insurance agent for small and micro businesses (those with 10 or fewer employees). Since its launch in 1997, TechInsurance has provided a convenient online destination where IT and technology consultants, contractors, and business owners can find essential liability insurance coverage from top-rated providers by completing an application process that takes only a matter of minutes. In addition to offering third-party Cyber Liability Insurance policies, TechInsurance offers General Liability, Property, and Workers’ Compensation Insurance. For more details about TechInsurance, visit the company’s website at http://www.techinsurance.com.

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