As commercial entities turn ever increasingly to technology for practically every aspect of management, from robotic creations and use in manufacturing to artificial intelligence in the selection of new personnel, the design of new software becomes increasingly complex. This was a key problem in the roll-out in October, 2013, of the new Patient Protection and Affordable Care Act (PPACA) by the U.S. Department of Health & Human Services. New software applications are constantly being promoted, but even tiny software errors can create nightmare situations for the entity that designs it or uses it.
“Evolving technologies and their risks to companies and IT (information technology) professionals are driving the demand for tech E&O coverage,” says Lori Chordas in the May, 2013, issue of Best’s Review. “Everything from security breaches of confidential information to programming errors, network interruptions and client data loss are potential exposures – justified or unfounded – that website developers, software-as-a-service providers and other IT specialists face. That has the demand for technology professional liability insurance [tech E&O] ‘going gangbusters,’” she reports, quoting Robert Sargent, president and CEO of Tennant Risk Services.
“Tech E&O can provide a variety of coverages. When a technology provider gets sued for negligence or intellectual property infringement, it can cover litigation costs arising out of their tech products and service. And, in some cases, the insurance also covers breach of contract claims and contractual indemnity claims,” she writes, citing another technology expert, Jim Whetstone, senior vice president of Hiscox. He also noted that firms engaging technology contractors are often requiring providers to have errors and omissions coverage.
Special liability coverage beyond commercial general liability coverage is needed for technology liability risks as the CGL forms specifically exclude this type of damage. The CGL definition of “property damage” specifically notes, “For the purposes of this insurance, electronic data is not tangible property. As used in this definition, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment.”
Tech E&O insurance experts note that such coverage is not standardized, the Best’s article states, as the creators of such coverage “take professional liability or miscellaneous forms and try to turn them into tech E&O policies, not quite creating the coverage to address the unique nature of exposures companies and individuals may encounter.” It is probable that such coverage would be written on a “claims made” basis, even though the problems created by software during one policy period might not be manifested until many years later. For example, the so-called Y2K software problem was created by software developers in the 1970s and 1980s, but was not discovered to be a problem until the 1990s.
As computers become smaller and the software and media for it constantly changes from large floppy disks or tapes to ZIP-packs or flash drives, valuable data stored on older media might become unrecoverable in newer computers, yet that data may be extremely important in everything from day-to-day business management to defense of major litigation where old data becomes evidence. Obsolescence of computers, software, media and other aspects of technology is therefore a major peril, but probably not a covered peril in a tech E&O form or any first-party coverage.
As new forms of professional liability insurance coverages come on the market, claim adjusters and risk managers need to be aware of how the coverages work and how claims will be handled. This is a key part of what is taught in Crawford & Company Educational Services classes and Knowledge Management Center on Demand.
Learn more about these and other valuable courses at KMCOnDemand.com.