Working in IT - 5 Typical Professional Indemnity Claims

Working in IT - 5 Typical Professional Indemnity Claims

A property insurance claim, such as a fire or flood, is easy to visualise. Professional Indemnity Insurance, on the other hand, is much less tangible, and our IT clients often find it more difficult to associate scenarios which could lead to a potential loss.

To help, we have put together some of the most common PI claims specific to the technology industry.

1: Breach of Contract

According to our partners, Hiscox, 60% of all PI claims for IT contractors in 2012 were connected to alleged contract breach.

Now, you may think that your “contractual terms of business” would protect you against legal challenges.

Often, that may be the case; but this does not stop a potential claim being made against you, which could incur significant costs associated with defending the allegations.

What is particularly worrying about this statistic is that some more basic negligence only policies may NOT cover contractual breaches and could leave your business significantly exposed.

EXAMPLE: A miscalculation of required man-hours leads to a delay to the new system or website you were building which is not delivered in line with the suggested UAT testing period.  

Your client had hired additional staff to cover the additional workload and is now looking for you to compensate for their losses.

EXAMPLE: Client claims that the proposed saving of 2 FTE has not been achieved following installation of your recommended CRM and back-office platform.  

They are looking for you to compensate them accordingly.

2: Professional Negligence

The core cover provided by PI Insurance protects policyholders against claims for negligence.  As an IT “Expert” the law deems that you hold a duty of care to your clients and a potential breach of this duty could be classed as professional negligence.

EXAMPLE: An overview document of your client’s new business venture is accidentally left on a train and falls into the hands of their main competitor.  The client claims they have suffered significant damages as the project has been compromised and future revenue impact.  As a result of which they are looking for financial compensation more than £250,000.

EXAMPLE: One of your team overlooks an application for a domain EA and the launch of your client's new web portal is delayed by ten days.   The client had paid for a £100,000 advertising campaign to coincide with the launch which they claim is now deemed worthless.

3: Intellectual Property Infringement (IP) / Breach of Copyright

Another widespread area for IT-related claims is challenges relating to IP infringement.  In today’s online world, it can be easy to breach protected trademarks, particularly around the use of logos or images.

EXAMPLE:  A designer inadvertently uses a photograph on a blog post without permission of the owner who subsequently claims damages.

EXAMPLE: A logo created for a client is deemed to infringe a competitors’ mark, and your client has received a cease and desist letter.  

The mark holder is demanding compensation, and your client is also looking for significant damages to cover a further rebranding exercise.

4: Loss of Data / Documents

API’s and data platforms provide amazing tools, but the growing accessibility of client data can lead to additional professional indemnity exposures should that data be lost or breached.

EXAMPLE: A new app provides medical records to doctors while out on the road.  However, a hacker gains access and 2000 records containing personal data are lost.

EXAMPLE: A password to a clients’ new CRM system following a data transfer is accidentally emailed to the wrong “Peter Jones”, and a rival firm gains access to client information.

5: Defamation

Social Media has changed the way we communicate and has opened up huge new marketing opportunities.  

However, the more natural conversational style can lead to potential issues, particularly if you are running social media campaigns on behalf of your clients’ brands.

EXAMPLE: An apprentice technician writes on their social media account that they “have had a terrible week installing a system for Company X Ltd., and they are the worst widget makers in the UK”.

Company X is tracking their mentions on social media, and you receive a legal claim for defamation.

EXAMPLE: Company Y is very concerned with the style used by your operative while managing their social media posts.  

They allege that this is entirely out of kilter with their brand guidelines and they are looking for you to compensate them.

Next Steps

  • Risk Assessment: Assessing and removing risk is a vital part of any business insurance programme, my mitigating risk and improving processes any potential losses can be minimised, and this will be recognised by your PI Insurers.
  • Staff Awareness: while principles and Directors may be aware of the risks, things such as Social Media and copyright infringements can be easily overlooked by other team members.  Take some time at your next “team huddle” to discuss the risks.
  • Professional Advice: Speak to your Professional Indemnity Insurance brokers or risk advisors to get some help and support in terms of reviewing your current policy terms as well as general procedures, manuals and processes.

Free Insurance Review

Insync Insurance will provide a FREE consultation and review of your IT Consultants Professional Indemnity Insurance and have access to a panel of specialist PI underwriters providing policies for all of your business Insurance needs.  

Book a free review via our website or call 0330 1240730 for more information.