Professional Liability Insurance: Claims Scenarios
Do you really need professional liability insurance? If you are in computer consulting,
the answer is a resounding "yes!" Whether your company employs hundreds of
consultants or you work out of a home office, if you make your money providing IT
services you should have Professional Liability Insurance.
Professional Liability Insurance Protects You From Legal Disasters:
Professional Liability insurance (also known as Errors and Omissions insurance)
protects your business from potentially catastrophic litigation caused by charges
of professional negligence or failure to perform your professional duties. Whether
the claim is baseless or not, mounting a legal defense can bankrupt your company.
Professional Liability insurance protects your company and your future by
responding to professional liability claims and helping you keep your business
operating as potential law suits move through the courts. Without it, your company
could be financially overwhelmed.
Legal Arena Makes Professional Liability Insurance A Necessity:
Professional Liability insurance is especially essential in today's legal environment
where the boundaries and definitions of professional requirements and duties are
largely legally undefined. Unlike lawyers and other professionals who have an
established body of tort, or contract, law from which to draw, computer professionals
are often in legally uncharted territory. What this means for you is that you may be
liable tomorrow for actions which are today completely in line with present consulting
expectations. Professional Liability insurance protects against the unknown and the unforeseeable.
Claims Scenarios Covered by Professional Liability Insurance:
Professional Liability insurance covers crucial aspects of your business and your
interactions with your clients. Below are some actual claims scenarios. You probably
face similar professional liability risks every day:
- A software design error causes an MRI machine to be rendered inoperable,
allegedly causing loss of profit to the hospital.
- A client contracts with a software consultant to develop a software system.
The contract contains specific benchmarks for speed and other requirements.
These benchmarks are not reached, allegedly as a result of the negligence of the
consultant. The consultant is sued in negligence, breach of contract, and negligent misrepresentation for loss of profit.
- A plaintiff purchases from a telecommunications specialist a piece of hardware,
a digital telecommunications switch. The contract also calls for the specialist to
connect the switch to the purchasers networked computer system, and to provide
maintenance. Several months after installation, the switch fails, causing the
purchaser significant down time. The customer sues, alleging lost revenue and
loss of reputation. The question arises as to whether the failure was due to faulty
design or manufacture of the switch, or due to the failure of the specialist to
adequately connect the switch to the network or to provide proper maintenance services.
- While transferring data from a legacy to web based system, a database is
compromised, resulting in the loss of valuable corporate sales information.
- A software developer is sued when, during the execution of a contract to build
an Internet application for a company, the developer is allegedly negligent in the
staffing of the project, which resulted in an alleged breach of contract.
Professional Liability Protection for Alleged Negligent Acts:
Your business provides a highly specialized service that many of your clients don't
fully understand. As a result, your clients may have incorrect expectations of the
services you are providing. Professional Liability insurance protects you against loss
from a claim of alleged negligent acts, errors or omissions in the performance of
your professional services.
Professional Liability Insurance Covers Claims Typically Excluded from General Liability:
General Liability insurance policies cover claims of bodily injury and property
damage only. They typically exclude coverage for claims related to the delivery of
professional services. For example, if you damage a computer while performing
your job (which might fall under General Liability insurance coverage), you may be
responsible simply for the finite replacement cost of a damaged computer. The
financial impact of your company's professional errors and omissions and
negligence is usually greater than the types of damage covered by general liability insurance.
Professional Liability Insurance Protection for Damage or Loss of Client Data:
The projects you work on are highly sensitive and of critical importance to your client's
business. Loss of client data, software or system failure, and non-performance of your
duties can drastically impact your client's ability to operate its business. This risk opens
you up to litigation. If you damage a company's client database, the cost to reconstruct
that database may far exceed typical costs for replacing hardware and software. In fact,
some client companies have won extremely large settlements when subcontractors have
lost irreplaceable data.
Professional Liability Insurance is Frequently Required:
You are a subcontractor working on a client site. More and more clients and consulting
firms require subcontractors working on site to provide proof of insurance. The insurance
most require are General Liability, as well as Professional Liability insurance. They want
to know they will be covered in the event a problem occurs.
Professional Liability Insurance Can Include Intellectual Property Liability Coverage:
You develop software. If you work as a regular employee then any resulting copyrights
belong to the employer. But if you are a professional independent contractor the waters
get murky and much depends on the terms of contract. The situation is even murkier if
the employee or independent contractor designs something similar to what has been
designed for the employer or client. These are relatively untested legal waters and court
cases thrive and multiply in them.
Professional Liability Insurance Can Include Copyright Infringement Liability for Web Developers:
You design web sites and software or you work with or "fix" previously purchased
software for clients. You are at risk for copyright infringement and/or charges of
misappropriating trade secrets.
Professional Liability insurance is your protection against the legal winds of change
and the ever-present possibility for human error.