This is Part I of our feature on IT Liability Insurance
is one of the fastest-growing sectors of the Australian economy, and its rate of change is even more rapid.
According to UK market research companyTechnavio, the IT spending market in Australia is set to reach $73.33bn in 2019 – an almost $20bn increase on its 2014 value.
Much of the industry’s growth is owed to the ever-increasing desire of businesses to achieve greater operational efficiencies and cut costs.
Insurance protection for IT companies is therefore more important than ever. It’s imperative that businesses can secure coverage that, as much as is possible, safeguards against the unique risks associated with the provision of IT products and services.
“The technology space is constantly evolving, with exposures changing continuously in line with legislation change,” says Declan Rye, director of London Australia Underwriting
“Legislation is often playing catch-up with the most innovative technology, and this presents a fairly unique and challenging underwriting backdrop.”
Rye cites the example of privacy legislation. “The Australian privacy laws are mid-reform, and hence the privacy exposure taken on at inception of a policy may look very different six months into the same policy period.
“There are obviously also many areas of technology that haven’t been legislated for as yet, and these areas will continue to evolve as does legislation to react to innovation.”
So, what are the exposures it’s essential for IT businesses to have protection against in 2016?
“Today’s IT policy should be broad enough to protect the insured against any unexpected legal situation, civil or legal liability, accusations of breach of contract, and intellectual property infringement,” Rye says.
Protection against claims arising from unintentional infringement of IP rights is essential.
“When an insured, in carrying out its professional services, has access to their clients’ IP – be it software, a service, or application – it can lead to allegations against the insured of using the IP to their own benefit, whether it be through provision of services or sale of products, and it’s usually unintentional,” Rye tells Insurance Business
“This is an area where claims are prevalent, particularly if there is US exposure.” While it’s uncommon for tech companies to find themselves the subject of claims arising from unintentional defamation, it’s important that their IT liability coverage includes that protection.
“Hotspots in this area are chat rooms [and] social media platforms generally,” Rye says.
“Whilst a technology company may enable conversation in this context (by merely giving users the ability to post comments), not as many fully appreciate that they can be held responsible, legally, for the users’ comments made [on] such platforms.
“There are some jurisdictions … where a ‘mere conduit’ (of comments) argument will help, but not all jurisdictions take the same view. It’s a bit like a restaurant owner being sued because a customer of the restaurant defamed a celebrity whilst eating dinner in that restaurant.”
Coverage extending to breach of contract claims is also a must, Rye says.
“Clients need to be made aware of their exposure where a contract stipulates strict performance and outcomes, particularly where there is potential for their role to change midterm but those changes are not reflected in the written contract,” he explains.
Rye says contractual liability causes headaches for a number of IT firms. “It’s worth brokers encouraging their IT clients to pay particular attention to contracts where the expected outcome changes mid-job, and to make sure that this change is reflected in the written contract, which can be updated by both parties.”
He adds that it’s important for businesses to have cover extending to liability under contract to pay liquidated damages.
In any business, employee dishonesty and fraud can impact on IT companies, and Rye stresses that coverage to protect against such loss or damage is also crucial.
“Sometimes, in the world of IT companies, the programmers understand more intimately their own code than their superiors and clients do. Personal gain in that context can be even greater, and whilst IT employees are no more fraudulent than in any other profession, if their dishonesty can go undetected for longer (as, for example, it may be hidden in line 28,670 of 40,000 lines of code) this can present problems.
“Unravelling such dishonesty can be costly too, hence the importance of cover in this area.” Additionally, Rye raises the need for policies to provide automatic cover for newly acquired entities. He also mentions the significant cross-border issues that can arise in technology litigation.
“Technology, unlike more traditional professional solutions, is often exported to other countries and continents, so companies can sometimes fall foul of differing legal systems and approaches to consumer protection,” he says.
“Globally, more and more collaboration is coming into play to try to standardise the legal position for truly global solutions such as technology, but in the interim such complexities will remain.
“Also, in the world of technology, outsourcing and subcontracting is fairly common, and so it’s important that a Tech PI solution offers the insured protection not just for their own actions but for those of a subcontractor too, as ultimately they will probably be held legally responsible
To be continued...