IT companies and the services they offer are not easy to categorise, largely due to the wide range of business and industrial environments in which IT professionals work.

Broadly speaking, work carried out by IT companies falls into one or more of the following areas:

• Packaged off the shelf hardware/software resellers
• Development of bespoke solutions
• Consultancy/Project management
• Outsourcing
• IT recruitment
• Internet service providers/web hosts

Since the IT class of business emerged from the traditional miscellaneous book of business, Insurers’ claims positions have started to develop in step with growth in the industry and increasing litigation involving IT companies. Despite this, Insurers have widened the cover they provide, partly due to commercial pressure but also due to developments in IT law. It is now common to find Insurers willing to offer cover on a civil liability basis, which was a level of cover previously reserved for more traditional professions.

Additionally, Insurers will now offer cover on an “any one claim” basis for the limit of indemnity together with first party losses.

What do Insurers look for?
The central question is what would be the immediate financial and other consequences if data is incorrect or a system becomes unavailable for any period of time. A lot depends on the precise function of the software and what commercial application it is being used for.

The main areas that give rise to litigation against IT companies are:

• Failure of the software/system to do the job for which it was intended (fitness for purpose)
• Failure to deliver the system on time
• Failure to deliver the system to budget

These can give rise to three types of claims:

• Client withholds or claims for return of the purchase price/fees paid
• Cost of putting the problem right
• Consequential loss

Insurers' first line of defence is the written contract between the insured and their client. Insurers will often ask to see the insured's standard terms and conditions. If smaller IT firms are asked to sign onerous contracts with larger customers it is important for the insured to understand the extent of cover offered to meet these contractual liabilities. Whilst cover for the first two types of claims mentioned above are available in the market, insurers expect that consequential losses will be excluded by insureds in their contract terms and conditions.

The prime underwriting criteria is of course what kinds of systems an IT professional is involved in. Areas of particular concern to insurers include:

• Systems in the financial sector
• Trading systems
• Acting as ASPs (Application Services Provider) or ISPs (Internet Services Providers)
• Large contract sizes
• Cases with US exposure

A proposal form is available in a Adobe Acrobat format by clicking the links below.

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