The concept of off-the-shelf technology solutions is like the Yeti or Loch Ness Monster: intriguing and even appealing, but elusive and rarely documented. As an IT consultant you know better than most that one-size-fits-all solutions, marketed as ready to use, are generally a good fit for only a very few and require feats of customization before they can be used.
Much of the same can be said about insurance for IT consultants. It would be easier if there was a grab-n-go professional liability insurance policy or general liability coverage that worked for all IT consultants. But just like your clients need tailored software, technology consultants require insurance tailored to the specific risks they face.
The types and amounts of insurance coverage your IT business needs are specific to your company and can be determined with the help of an insurance agent, broker, or insurer. But as a rule of thumb, there are three main types of insurance you probably need:
Professional Liability Insurance – also known as errors and omissions or E&O, protects your business against mistakes you might make and claims of negligence that may be ultimately baseless. It’s a must for any business that regularly gives advice to clients, which probably describes at least half of your work. Professional liability coverage also comes into focus with two scenarios that are highly relevant to IT consultants: covered claims due to faulty backups and those that are brought by dissatisfied clients alleging you made an error.
Let’s say you’ve been contracted to back up a client’s business records, and the external hard drive you use fails. You lose all of their data. Your client could make a claim against you for using improper backup procedures, which caused you to fail to deliver a promised service. While you can’t control every piece of hardware or predict an equipment failure, you still may be found liable. E&O insurance protects you in this scenario.
Dissatisfied client situations aren’t so black-and-white but pose a risk nonetheless. Here’s an example: You’re hired to review a client’s website and network to find and fix security weakness. One month after the project wraps, their website is hacked and goes down for a few hours. The client accuses you of faulty work and holds you responsible for the revenue lost during the outage. Professional liability insurance should protect you against a covered claim. It also provides the resources for defense in this situation and in other situations where clients choose to legally pursue a covered claim arising from the allegation of an omission in the service you actually provided versus the service you said you would provide.
General Liability Insurance – also known as CGL or GL insurance, covers claims arising from property damage, bodily injury, and associated medical bills. It may seem superfluous, but being protected from liability as you visit clients’ offices or use third-party locations is important, as these activities are daily events in the lives of most IT consultants. All technology service providers should consider a general liability policy for the protection it provides from not just bodily injury claims but also personal injury issues (libel or slander), and damage to others’ property.
When does a GL policy come into play? A good example is setting up a client’s network. As an IT consultant your work often involves configuring equipment that can create the risk for property damage or bodily injury, and the network set-up is no exception. Should your configuration overload an electrical supply, short out, and cause a fire, general liability insurance should protect you against covered third-party claims for property damage, bodily injury, and related medical costs.
Also consider that general liability coverage might be required by some or all of your clients, with a customary coverage requirement of $1 million. If you have a general liability policy before a contract requires it, you can get started that much sooner – and earn that income faster.
Business Owner Insurance – also known as a business owner's policy or BOP insurance, combines general liability coverage with protection for business equipment like computers, servers, external hard drives, and network cables. Damaged equipment brings custom software and website design projects to an abrupt halt, which could bring your IT business to a standstill. Having BOP insurance helps get you up and running again as soon as possible. This policy should also include coverage for loss of your electronic data (except personally identifiable information), which is a critical component of today’s IT consulting landscape. In short, a business owner’s policy could be an IT consultant’s best friend.
Ultimately, your goal as a consultant is to help clients meet their business objectives while also meeting your own. If you don’t already have insurance for your small business, today is the day to start requesting quotes. A business overwhelmed by legal problems isn’t likely to meet objectives – a situation made sadder knowing these problems could’ve been quickly handled with the right IT consultant insurance protection in place.
Do you have insurance for your IT business? Please share your thoughts in the Comments section below.
The contents of this article and the linked materials do not offer legal, business, or insurance advice related to the needs of any specific individual business. Claim scenarios are for illustrative purposes only and are subject to the terms and conditions of the policy in question. Please consult your professional advisor.
Kevin Kerridge is the director of small business insurance for Hiscox, a company that provides customized business insurance for IT professionals including consultants, project managers, programmers, developers, designers, and many more technology professionals.