Onerous contractual terms impacting coverage for IT providers

There is a trend of broader indemnities (including no fault clauses), waivers of rights, limitation of liability clauses and additional insurance, being sought by large companies engaging information technology (“IT”) liability services. These obligations and assumed liabilities are often not insurable or prejudice IT providers’ insurers, thus significantly impacting coverage available under their insurance policies in the event of a claim

In the ordinary course, indemnities are sought by principals to transfer liability arising from the conduct of an IT provider in connection with the IT services it performs (or fails to perform) or the products it supplies. In-turn the IT consultant would transfer the risk of meeting any liability in respect of that loss under its Information Technology Liability (“ITL”) policy (for details of coverage provided under an ITL policy, see our article here).

Where the IT consult assumes liabilities under contract then in the ordinary course, any liability that exists because of such express undertaking will not be covered by a standard ITL policy. More so, the contractual undertaking may waive the insurers rights to recover against third parties who may have caused or contributed to the loss subject of the indemnity provided to the principal.

Where the IT consultant provides such indemnities, and waivers exist, then any liability from such provision or prejudice suffered as a result of same (and loss that flows from same) will be a commercial, uninsured risk.

It is fundamental in the current climate that IT providers understand these commercial risks. At Bellrock we can assist IT providers with their understanding of insurable and commercial risk.

As part of this process, the following matters should be considered:

  1. Do you hold the requisite policies and have the limits of indemnity been sought?

  2. Does your insurer comply with the financial strength and regulatory requirements as required under your contract?

  3. Does your policy respond for claims brought against you in overseas jurisdictions, or for claims resulting from services supplied in overseas jurisdictions?

  4. To what extent are the indemnities you provide in the contract covered by the policy and what are the “commercial risks”?

  5. What implications are there for you agreeing to limitations of liability provisions?

  6. Are there any other insurances that you may consider to offset some of the “commercial risks” that exist?

For more information and advice regarding IT Liability insurance and how Bellrock can assist your business in understanding and managing its risk, please contact us via the form below.

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