I’m An Information Technology (IT) Professional, Why Do I Need Business Insurance?
An insurance brokerage hires a local information technology company to replace their outdated computer systems. Over a weekend, the old system is removed and a new computer network is installed. During the testing process, a number of bugs arise, and the insurance brokerage is closed for a week for repairs. The brokerage loses thousands of dollars of revenue during the shutdown and sues the IT company for loss of income.
Commercial General Liability Insurance
Some IT professionals are aware of commercial general liability (CGL), which would protect them from lawsuits resulting in property damage or bodily injury caused to third parties, but most are not familiar with errors & omissions (E&O) or professional liability.
CGL, while still important for IT professionals, is more important for companies involved with the construction trade, for example. A roofing company may accidentally drop a load of shingles onto a vehicle parked below, or more seriously, onto an unsuspecting pedestrian walking her dog on the sidewalk below. CGL is very important for a roofing contractor, as these incidents occur often.
Errors and Omissions Insurance
The primary exposure for IT professionals, however, is the risk of financial loss caused to one of their customers, as in the example given above, and this is called Errors and Omissions.
While other consultants, such as management consultants who try to improve business processes or improve supply-chain management, have some exposure to financial loss, the IT industry is seeing increasing exposures. Besides the fact that software may fail or servers may crash, they also have exposures to privacy and data breaches. One only needs to look at the Target retail store breach (in which hackers gained access to 40 million credit and debit card numbers, as well as the private contact information of 70 million customers) to understand the magnitude of the potential losses that could occur, and how important E&O becomes.
Other areas of concern for IT professionals include intellectual property infringement, using someone else’s patent without their consent (by accident, of course). This could also include copyright, and design and patent infringement, such as the ongoing dispute between Apple and Samsung. These are also examples of possible E&O claims for IT professionals.
IT professionals need to be very aware of the risk exposures that are present when performing IT projects for their clients. One mistake could destroy careers, bankrupt an IT corporation or individual professional, and/or eliminate all financial security.