Category: Software Insurance

Is your present insurance protecting you from faulty software products? Learn what you need to know in this rapidly changing area.

Certificates of Insurance

Our clients frequently request certificates of Insurance. Certificates are often a source of confusion. In an effort to shed some light on this illusive document, I have outlined a few keys points pertaining to certificates of insurance.

What is it?

A document that verifies your insurance for specific coverages [for example Property, General Liability, Auto Liability or Workers Compensation] and coverage limits with your insurance company’s name for a stated period of time [the policy period]

Who requests them?

  • Landlords
  • Clients/Customers – companies, people or organizations you agree to perform a service for or provide a product to
  • Owners of leased equipment
  • Banks/Financial Lenders

Cancellation Notice:

The Insurer/Agent will try, but is not legally obligated, to notify the certificate holder in the event of cancellation of coverage within the stated amount of time [normally 10 to 30 days].

Certificate Holder vs. Additional Insured:

Certificate Holder:

The Certificate states to the Certificate Holder that the Named Insured (you) has the specific coverage and limits listed on the certificate. It does not grant insurance coverage to the certificate holder. It only states that you have the specified coverage.

Additional Insured:

An Additional Insured is an entity that is not automatically included as an insured on the policy. Therefore, the Certificate extends a certain degree of insurance coverage to the Additional Insured on your insurance policy. A contract or lease number is generally referred to on a certificate to specify the reason the Certificate Holder is named as an Additional Insured (i.e. “Certificate Holder is named as an Additional Insured with respect to the leased premises at 123 Main Street, Anytown, USA.”)

It is important to have your agent review the insurance sections of your contracts or lease agreements prior to signing the agreement to be sure that the insurance requirements in the document coincide with your company’s insurance policy coverage. The Certificate of Insurance clearly states that the “certificate does not amend, extend or alter the coverage afforded by the policies.”

 

The Need for Software Insurance

Software in the 90’s is a “tangible”, a “good”, and no longer considered an intangible, or service. The insurance implications for software professionals are ominous!

Any software specialist having been insured under a $250.00 comprehensive property, liability, and lost income package saw that program disappear as well known cases like Magnetic Data, Inc. v. St.Paul Fire & Marine Insurance Co.1 begin to alert wary underwriters.

In the Magnetic Data case, the consequences and insurance provisions responding to an accidental erasure of data were under consideration for the first time.  Property Damage provisions of a basic small business package described above might have been forced to respond to a situation never contemplated for the premium charged.  While Magnetic Data never ultimately did decide the tangibility matter, Retail Systems, Inc.v. CNA Insurance Companies2 did declare software as tangible. Thus ended an inexpensive insurance vehicle for the software industry!

Endnotes:
1 442 N.W. 2d 153 (Minn.1989)
2 469 N.W. 2d 735 (Minn. 1991)

 

Technology Risk – What You Can Transfer, What You Cannot!

In economically troubled times business risks take on increased weight. You need to understand clearly what risk you can transfer – and what risk you cannot.

Client expectations of their insurers have recently led to huge claims in areas never contemplated by insurers. Contract disputes, once strictly in the realm of business risk, have been transported to insurance claims unintended by the carrier. 2003 has seen considerable constriction in coverage terms and language, even while costs are continuing to increase.

Solvency issues raise questions when partnering, when licensing, and when depending on sole sources for parts or services. Capital funding resources scrutinize such issues much more carefully, being sure that business continuity is as secure as possible. Software code escrow, licensing contracts, and similar arcane matters have grown in complexity as national and international commerce raises new levels of concern.

Write your customer contracts in a way that limits your liability for consequential damages and economic loss. Then, your insurer should be by your side to defend in the event of a claim for damage caused by your hardware, software, service, or people.

This is how you should expect to be covered by your E&O insurer:

Types of Problems Yes No
Contract disputes
errors in code x
consequential (financial) damages x
impaired processing x
destroyed files x
delivery delays x
contract performance quality x
problems prior to client sign-off x
Buggy hardware/software
economic loss to client’s relying on your work x
damage to client’s system you cause x
shut-down economic loss x