In your day-to-day operations as an Information Technology (IT) Professional you are likely to process large volumes of valuable data, complete tasks governed by strict deadlines, all whilst providing expert advice to clients. Unfortunately, such tasks bear a high element of risk and an increased potential for mistakes, delays or accidents to occur.
Despite many contractors and businesses being able to identify their Public and Products Liability exposures, they often mistakenly believe this covers them against all liability exposures. But this is not the case.
If a claim arises in relation to an IT Professionals expertise it is generally treated as a “service” and therefore not covered under Public and Products Liability Insurances. Protection from such claims is provided through Professional Indemnity Insurance, often referred to as professional liability insurance or PI insurance. Professional Indemnity Insurance is designed to protect the insured entity, its directors and staff from claims arising from an alleged breach of professional duty owed to a third party.
Due to the nature of the work undertaken by IT Professionals which often involves the provision of both a product and a service, IT Professionals require specialised cover to protect them in the event of a claim. A combined Professional Indemnity and Public Liability product designed specifically for Information Technology specific risks covers liability arising from the failure of products, services and advice.
Information Technology professionals who need Professional Indemnity insurances include, but are not limited to:
- IT Consultants or Contractors
- Software developers
- IT Project Managers
- IT Education and Training providers
- Systems Analysts
- Software Maintenance Services
- IT Support and Help Desk
- Application Service Providers
- Systems Integrators
- Website Designers / Developers
- Hardware or Software sales
- Network Design / Development / Support
- ISP / Web / Internet Services / Hosting
- IT Recruitment and Placement Services
- Data Processing / Warehousing Services or Data Communication Services
Real Examples
If you are still unsure as to whether you need Professional Indemnity insurances, consider the following scenarios which have occurred within the IT industry:
Insured: Software Developer & Consultancy
Scenario
- The Insured entered into a contract for the design and development and supply of software.
- Two years later the software was incomplete and contained numerous errors.
Problem
- The third party rejected the software and dismissed the insured.
- The third party abandoned the software altogether and engaged another party to develop a fresh solution.
Outcome
- Proceedings were brought for breach of contract, claiming repayment of the contract price ($600,000) and damages for wasted expenditure.
- The insured relied on a clause limiting its liability to $25,000 in respect of each contract, the third party claimed the terms were unreasonable and therefore unenforceable.
- Breach of Trade Practices Act Section 52
- Breach of the Fair Trading Act Section II
- Breach of Contract
- Claim: $1,400,000
Insured: Internet Service Provider / Domain Name Register
Scenario
- The Insured as part of its business activities provided domain name registration.
- The Insured did not renew a client’s domain name and it was lapsed.
- Another entity registered a name of a similar nature less than 1 hour after the original domain name was removed.
Problem
- The third party could no longer transact business using the domain name
Outcome
- Breach of Trade Practices Act Section 52
- Allegations of collusion
- Breach of Contract
- Negligence
- Claim: $450,000
Insured: Software Developer
Scenario
- The third party investigated acquiring a computer software package to handle both the financial and general business functions.
- The insured and the distributor made a presentation to the third party on the capability of the systems.
- The contract was awarded on the basis of the purchase, training and ongoing support & maintenance of the Systems.
- The distributor undertook the integration of the systems and ran into difficulties. After a period of time the third party requested the insured to become involved in solving the functionality issues.
Problem
- The system failed to meet the performance levels, which were indicated prior to installation.
Outcome
- Breach of Trade Practices Act Section 52
- Negligent in regard to the installation
- Negligent in addressing and correcting problems
- Breach of Contract, as software was not fit for the purpose for which it was supplied.
- Claim: $2,000,000
It should be highlighted that all three examples resulted in Professional Indemnity claims, despite each scenario involving the provision and acquisition of products. This is because the clients relied upon the insured’s expertise, therefore making it a professional liability claim.
How Much Professional Indemnity Insurance Do I Need?
As highlighted in the above examples professional Indemnity claims can be very expensive. Even in a scenario where a third party falsely alleges that your actions have resulted in a loss, a defence needs to be provided and the cost of which can be significant. Therefore it is vital to select a level of cover that can properly protect you and your businesses in the event of a claim. As every business is unique, there is no ‘one size fits all’ when it comes to selecting the right amount of Professional Indemnity Insurance suitable for your business’ needs. To get an accurate assessment of your insurance needs it is highly recommended that you contact a broker, but as a starting point here are some points to consider when selecting your amount of cover:
- Consider the nature of your business, and the projects you undertake:
- In the event of a problem occurring what could be the potential financial loss? What are the sizes of your contracts? How much could your clients lose in the event of a loss?
- You must consider your appetite for risk and what are you prepared to pay for your preferred insurance cover:
- In the event of a potential loss how much exposure are you willing to carry for yourself? i.e your excess.
- Different insurance products can have varying levels of cover and features. Which of these covers provides you the maximum amount of risk given your budget and risk preferences?
On occasion the level of Professional Indemnity Insurance may be dictated by your professions’ governing bodies or even by your clients. For instance, the terms of contracts will often require your business to maintain a minimum amount of Professional Indemnity Insurance. In such instances, it is essential that you are compliant with the required level of cover.
What Now?
Hopefully you now have a better understanding of what Professional Indemnity insurance means to you.
If you are an Information Technology Professional with Public Liability and Professional Indemnity needs, Cerberos offer a comprehensive combined Public Liability and Professional Indemnity insurance package designed specifically for IT professionals. You can quote, bind, pay the premium and receive full policy documentation online within a few minutes. You can also to pay in full or by monthly instalments. Get started today!
If you have any further questions or you would like assistance in assessing your Professional Indemnity Insurance needs please be sure to contact one of our Professional Indemnity experts.