Tuesday, June 17, 2014

What Your Agent Isn't Telling You About Your Tech E&O Insurance Policy

Everyone is wary of the small print of the insurance policy. The devil is in the details, right?

Most general liability forms are standard and written by the Insurance Services Office (ISO), so even though they are wordy and in an insurance language the policies have at least been vetted by countless court cases, decisions, and attorneys over the last 50 years.

However, Errors and Omissions (E & O) forms are all written by individual companies and each one is different.  The policiy forms are constantly changing to keep up with new technologies.  The internet only started around 30 years, Facebook started 10 years ago, now we have Snapchat and Tinder and who knows what is next.

My point is that as soon as a company creates a form, it must rewrite the policy form in order to exclude new tech that they didn't foresee when they created the product.  These exclusions could be far reaching in their wording and exclude other things that you may assume were covered.

I recently spoke to a technology insurance underwriter for the biggest tech carrier in the US. Besides going over the regularly included Tech E&O coverages such as:
  • Denial of Service (DOS) attacks
  • Losses from malicious hackers
  • Copywrite or trademark infringement
  • Failure to prevent disclosure of private information
  • Failure to prevent the introduction of malicious code
We discussed at length one crucial coverage:

Breach of Contract

According to my source at the company, 92% of claims came from breach of contract. Breach of contract coverage, sometimes called breach of warranty or representation, provides protection for your software or website company if your customer sues you for a number of reasons, but the main categories are:
  • Negligence
  • Failure to perform

Many major US carriers exclude breach of warranty all together or have additional exclusions that can strip coverage in the event of a claim.
  • Exclusion for contractual liability - liabilities that you agree to by contract but may or may not have to do with the work you are specifically doing
  • Exclusion for breaches of contract that stem from a payment/fee dispute
  • Exclusion for any breach of warranty
Not only are you missing out on coverage if you lose the law suit, but many times the most expensive part is the attorney fees. If the claim is denied, then the company won't pay any money to defend you in court.

Not having this coverage can cost you big money. For example, a recent claim involved a software developer who created a software to conduct risk modeling. The customer relied on the software in order to make financial decisions. The company went bankrupt and blamed the software company because the client's decisions were based on the software risk modeling.

The claim expenses alone cost over a $1,000,000 and the payout in the end was over $4,000,000. - This claim scenario came from The Hartford (see disclaimer below)

For a small software company, a lawsuit can bankrupt the company or force it to make hard decisions such as laying off workers that the company wouldn't have had to make if it had the correct coverage.

Have you been involved in a tech related lawsuit related to breach of contract?
I'd love to hear your comments.

My Disclaimer - This post is not a substitute for professional legal advice. This post does not create an insurance agent-client relationship, nor is it a solicitation to offer legal/insurance advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed insurance agent in the appropriate jurisdiction before taking any action that may affect your rights.
Hartford's Disclaimer - The scenarios summarized herein are offered only as examples. Coverage depends on the actual facts of each case and the terms, conditions, and exclusions of each
individual policy. Please refer to the policy to determine all terms, conditions, exclusions and limitations of coverage. Coverage is provided by the property and casualty
companies of The Hartford Financial Services Group Inc. and may not be available in all states. All information and representations herein are as of January 2013.
018993 Rev Printed in U.S.A. © January 2013 The Hartford Financial Services Group Inc., Hartford, CT 06155 All Rights Reserved

This post was originally posted on LinkedIn on 6-16-14 https://www.linkedin.com/today/post/article/20140616214826-23362016-is-your-tech-company-missing-its-most-important-coverage?trk=prof-post 

Wednesday, December 11, 2013

Is filing a claim worth it if the value isn't that high?

Is filing a 

home or renters insurance claim worth it if the value isn't that high?  Items worth: ~$1500  Deductible: $1000

A few questions to ask yourself:
  • Could this turn into a larger claim down the line?
  • Am I willing to pay a higher premium if I make this claim?
  • If I'm not sure if I'm going to make a claim for $500, would I be better off at a $1,500 or $2,500 deductible?

So here's the rub.  One claim isn't going to kill you and may not affect your premium at all.  You could lose any 'claims free discount' that some companies offer. 

If you have another big claim such as a water damage claim, you now have a severe claim and have a frequency of claims (2), so you may not qualify for the best rates anymore.  
Also, keep in mind that many brokers will have to report your claim to the company even if you don't want them to because of the nature of their contractual relationship with the carrier.

Creating a spreadsheet along with when, where, and the cost of items is a great way to keep track of your household inventory.  There is also software that will do this for you and lets you scan in receipts and attach pictures (knowyourstuff.org
).  By going room by room and listing everything, you will have a better case when speaking to adjustors.

Schedule any heirlooms onto the policy with a specific agreed value.  Also, you can raise the limit for jewelry by endorsement.

This blog was a combination of two questions I answered on Quora.  See my answer and others here:

Tuesday, November 5, 2013

4 Things to Think about Before Subleasing your Commercial Space

Why Subleasing Complicates Your Liability

Leasing part of your space can be a great way to make a little extra money for space you are not using.  It helps pay the rent, complimentary businesses could lead to referrals, and it could lead to great personal or professional relationships.  However, you could be putting you and your business at risk.  

Here are some liability points to consider:

Your Landlord Doesn't Care if Its the Sub-lessors' Fault
1. Your agreement between you and the landlord are between the land lord and you.  Unless the person subleasing is specifically named in the lease, the landlord is not responsible for any agreed terms to the subleased entity.

Create your own lease (with help from legal counsel) between yourself and the tenant just as if you were the landlord.  Require in the lease that the sub-lessor has at least as much insurance as you have.  A waiver of subrogation saying that you are going to take care of your stuff and they are responsible for their stuff is a great standard clause to add.  
Beware of subleasing - Picture by Josh Ulfers

Your Insurance Company Doesn't Care if its the Sub-Lessors' Fault
2. You need to tell the insurance company that you are subleasing space.  The entity you sublease to should have its own insurance and name you as an Additional Insured.  By doing that you gain protection on the sub-lessors policy if the sub-lessor has a claim that is his fault.  Without the sub-lessor having his own policy, your insurance company could even deny a claim stemming from an action from your sub-lessor.

Your Business Income Doesn't Include Rental Income
3. Making $5,000/month from leasing part of your space?  If business income from renting isn't explicitly added to your policy, then you won't be paid for that income in case of a covered loss.  It's inexpensive, but often overlooked on most business owner policies.

You Could be in Violation of your Lease
4. Make sure that your lease doesn't have a clause that prohibits sub-leasing.  In most cases it is best to talk with your landlord before making any subleasing decisions.  Violating your lease could put you in jeopardy of eviction or hefty penalties.

Talk to your landlord, commercial real estate broker, and your insurance agent before making any subleasing arrangements.

This blog article is not a substitute for professional legal advice. This answer does not create an insurance agent-client relationship, nor is it a solicitation to offer legal/insurance advice. If you ignore this warning and convey confidential information in a private message or comment, there is no duty to keep that information confidential or forego representation adverse to your interests. Seek the advice of a licensed insurance agent in the appropriate jurisdiction before taking any action that may affect your rights.  

Tuesday, May 21, 2013

Is Data Breach Covered Under My Tech E&O Policy?

Is Data Breach Covered Under My Tech Errors and Omissions Policy?

So you are the proud owner of a brand new technology errors and omissions policy. You are so excited that most of your professional services are covered and that you can go into every new contract confidently knowing that if something goes wrong and your software or app glitches that you'll be covered.  Then you stop to ask yourself:
Data Breach can happen to any company.  Are you covered?

What if my customer's data gets hacked or stolen?

There are two answers for this question.  You need to know the difference, so you don't end up owing thousands of dollars for something you could have prevented.

Answer 1:

Yes, you are covered!

On most technology E and O forms, the data you work with in order to perform your professional service would be covered in case it was hacked, stolen, or destroyed.

For example, a software company that creates a database system for medical records may need access to the files in order to create the enterprise software.  While creating the software, the main software programmer's laptop is stolen along with access to 1000s of his client's medical records.  Because the programmer was performing a professional service, it would covered.

Answer 2:

No, you are NOT covered!

If you keep digital or paper records of customer's credit cards and company information and your company's computers get hacked and that information is stolen, there is no coverage under the technology E and O form.

I could write an entire post on data breach, but here are a few of your responsibilities:

  • You would be responsible in notifying every customer that could have lost data (PR Nightmare)
  • Offer to monitor credit for at least a year
  • Validating addresses
  • Hiring a data breach response company
  • If not done in 30-45 days there can be hefty fines and penalties
  • Here's a guide for data breaches from Experian: http://www.experian.com/assets/data-breach/brochures/response-guide.pdf 

The difference is that the information is not being stored as part of your professional service.

So, where can you get coverage for customers' sensitive information?

You need to buy a separate data breach policy or add data breach coverage to your general liability.  If you buy a combo general liability/tech E and O package policy, you most likely have the option to add this coverage.  One insurance company that does a great job of this is The Hartford (http://www.thehartford.com/business-insurance/technology-liability-insurance).

Usually, this coverage only costs an additional $400-$1,000 per year, but can save you a lot in the back end if there is ever a breach.

According to the cited Experian article above, 76% of companies who had experienced a breach of customer data believed the incident had a moderate or significant impact on the organization’s reputation.   

Make sure you can bounce back quickly and effectively if you ever have a breach.

Besides insurance, what are ways you safe guard your customers' sensitive data?  

Thursday, January 17, 2013

What Insurance Should a Technology Start-Up Consider?

Is your tech company protected properly?

At different stages of the Start-Up process, you may want to consider different policies. 

In the beginning stages you may want to pick one or two of the following policies because of limited resources. 

Once you procure funding and are trying to attract the best of the best, you may want to purchase all of the policies below.

Here are the policies you may want to consider in no particular order:

Technology Errors & Omissions (Tech E&O) – Insurance for failures in your technology service that could cause customers damages. Tech E&O is most likely your most important policy because most everything you do would be considered a professional service and is excluded from the General Liability policy.

•Data Breach/Privacy Coverage – In case you lose sensitive employee or customer data, this policy pays to notify, monitor credit, and anything else you need to do in case of a breach.

•Media Coverage – If you are doing any kind of media/social networking. Some of these coverages are added automatically to the Personal & Advertising injury section of the General Liability policy, but are explicitly excluded for companies with a media focus. Examples of these exposures include: unintentional copyright violations, libel, slander, etc.

•International Coverage – If you have operations outside the coverage area (US, US Territories, and Canada)

•General Liability Coverage – This is your most basic insurance that most contracts will require: covers basic trip and fall. You can also add supplementary auto coverage for rented and non-owned (including employee) vehicles. If you have company vehicles, you should consider purchasing a Business Auto Policy.

•Property – Cover your computers, servers, tenant improvements. In addition, business income is added to this policy; look for coverage including business income for Denial Of Service attacks, etc.

•Directors & Officers – Insurance if you have investors or stakeholders. Directors and Officers can be held personally liable for decisions of the company, so this coverage can be crucial in securing high profile board members.

•Disability – Insurance for the owners if they are in an accident and no longer able to work.

•Key Man Life – Insurance policy in case something happens to your partner. Both partners buy life insurance policies on each other, so they can buy out the partner’s share. This way you avoid becoming partners with that person’s significant other.

•Health Insurance – Great way to keep your employees on board and attract great talent.

•Workers’ Compensation – Mandated by CA state law even if you just have one part time employee. Good news is that rates for most technology workers are very inexpensive.

•Employee Practices Liability – Protect yourself from employment related lawsuits: wage & hour, wrongful termination, discrimination, etc.

Some of these policies are offered in packages, while others are sold separately. Most large companies that contract smaller technology services companies will require you to have General Liability, Technology E&O, Workers’ Compensation, and Business Auto.

Talk to an independent agent to see which of these coverages would be a best fit for your business.

This article was originally published on the Co-Merge website on Jan 11, 2013. 

Friday, November 30, 2012

Protecting Your Business With The Right Kind of Insurance

If there’s one thing you can do as a business owner to minimize the sleepless nights, it’s ensuring you've got the right level of insurance. 

Nobody likes to think all their hard work might go up in smoke or be washed away in a flood. Unfortunately, it can and does happen. Choosing the right insurance cover will allow you to pick up the pieces and resume operations with minimal financial loss and disruption to business should such an event occur. 

There are a few simple ways you can work out what kind of insurance is right for your business. Ask yourself the following questions: 

  • What is the most catastrophic event that could befall my business? 
  • What is the most likely adverse event we’re likely to encounter? 

Each business has its own inherent risks.  Don't roll the dice when it comes to your business. 

The answers will be very different according to what kind of business you run and where you’re located. If you sell outdoor furniture, the worst case scenario may be all of your merchandise getting destroyed in a warehouse fire. You’ll definitely want Property Coverage, which insures you against damage to buildings, contents and stock caused by fire and other perils. 

Conversely, if your run a website design business based in a small office space, you may find Property Coverage less critical. What you will need is Computers and Electronic Coverage, which insures you against theft, accidental damage, breakdown, fire, and business interruption.

This was a guest blog from Belinda J Darling. To learn more about how you can protect your business with the right insurance coverage, contact the experts at www.mckenzieross.com.au

Saturday, October 6, 2012

Worker's Compensation Decreasing Rates: Is this Good for Employers?

Worker's Compensation Increases:I wrote this article about how to reduce your workers' comp insurance costs on my company's blog last week based on the report that workers' comp rates were set to increase at least 7% based on new legislation and company projections.
Employers will have less choices for workers' compensation 

Since then, there have been some more news on workers' comp where State Fund, CA's largest insurance company for workers' comp, has said that they will lower rates by 7%.  This sounds like good news to most business owners on the surface, but insurers lower rates are motivated by many factors.  See Insurance Journal's article: Calif. State Fund Board: Drop Rates 7%

As the CA workers' comp market begins to tighten, the State Fund is putting itself in the position to gain more market share in a shrinking market.  When an insurance market tightens it means that consumers will face higher rates, less discounts, tougher underwriting, and less choices of companies.  These market conditions are good for companies such as State Fund because they can entertain many risks that other private insurers will not be able to contemplate.

Lowering rates may force other private companies out of the workers' comp market because they will choose not to compete where they can't make a profit.  This is bad for the business owner because it will mean higher overall costs.   

The State Fund decreased rates will start January 1, but not all class codes renewals and will most likely not be in affect till second quarter of 2013.

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