Insurance Policy Types

The ability to build and maintain strong relationships with business partners and vendors is an essential requirement for any business seeking long-term success. This is especially true in the fast-paced technology sector, where a company’s ability to put its innovative ideas to work often depends on its access to outside capital and its skill in turning connections into contractually-bound partners, vendors, clients, and customers. The unfortunate corollary to the need for technology firms to build and maintain relationships with outside partners is, of course, that no relationship is perfect. Not all partnerships are built to last. That reality raises an all-important question: how do you prepare your firm for the inevitable day when one of its business relationships sours?

As my colleague Linda Powell discussed recently, firms that provide technology services and products can manage their relationship-based risk by purchasing Technology Errors and Omissions (Tech E&O) insurance. Alternately known as Technology Professional Liability Insurance, Tech E&O insurance is likely to respond to demand letters, claims, or lawsuits brought against your firm by dissatisfied business partners, vendors, or customers who believe that your firm has committed an error or made an omission that caused financial harm.
Continue Reading

Wildfires have wreaked havoc on, and caused incalculable losses to, individuals and businesses in California over the last three years. These disasters—caused by a series of conflating events, including massive shifts to the climate—are not limited to the Golden State, as fires have devastated many western communities, and fires as well as other unprecedented weather events, including hurricanes, flash flooding, cyclone rains, and extreme-cold freezes have disrupted businesses across the world.

Most businesses know how to protect their physical offices and facilities with commercial property insurance, including business interruption coverage, in case they are directly affected by physical disasters. But, in today’s business environment, a company may be closely tied to and dependent on third-party suppliers. What happens if a major player in your supply chain is adversely affected by one of these (unfortunately) all-too common climate disasters? Unless you operate at ground zero in vulnerable environmental zones, you may not be aware of the fact that your vendors may be the ones most directly affected, and this might have a devastating ripple effect on your ability to operate a successful business.
Continue Reading

Most firms that provide technology services or products have insurance to protect them against the risk that a dissatisfied customer will bring a claim or a lawsuit against them for damages arising out of the company’s products or services. It is very likely that such firms purchase general liability insurance, which is an important product that covers many different risks, including property damage, bodily injury, advertising injury, and other business-related claims. Most importantly, general liability insurance policies often require the insurer to defend the company in the event of litigation, making it a particularly valuable type of insurance. But will general liability insurance protect your tech company in the event of a claim by a client for purely financial damages? The short answer is, probably not. This is the reason for tech firms to consider a Technology Errors and Omissions (Tech E&O) policy as part of their overall coverage program. Using the examples below, this article discusses the coverage such policies can provide.

Example 1: Tech Product

Let’s say your company designs and provides building design software to architecture firms. Due to a problem with your software, several architectural designs for major projects have incorrect specifications, which impact many large projects. As a result, your company’s clients lose revenue because they have to revise the design plans for these projects, which takes additional weeks of architect time. If the architects then sue your company for damages, it will have to defend itself in the lawsuit and possibly pay a settlement or judgment to the architecture firms. 
Continue Reading

As the risks associated with cyber liability continue to evolve, so do the insurance products that are theoretically meant to protect against those risks. As the insurance industry attempts to keep pace, the applications that insurers are using to capture the data they believe is necessary to underwriting these risks are also evolving and vary to a large degree. Regardless of whether an application is long or short or seeks information in generalities or in detail, all prospective policyholders must take care in completing these applications, enlisting the help of a data security professional (whether within the organization or a consultant) and possibly of a good broker that specializes in this area. Indeed, a failure to provide accurate information could cause an insurer to resist providing coverage for a claim, or attempt to rescind the policy, on the purported grounds that there was a material misrepresentation in the policy application.

This article first provides an overview of the key categories of information that most cyber-liability insurance applications seek, followed by some of the key principles of which a policyholder should be aware in the event an insurer attempts to deny a claim or rescind a policy based on alleged misrepresentations or omissions in the policy application. 
Continue Reading

Your company receives a demand letter and you realize that the claim stems from a vendor’s product or service. What do you do next? The first step for most companies will be to review the operative contract for any indemnification provisions. Next on the list will be to review any certificates of insurance issued by the vendor. All too often, however, companies at this phase learn that they were never actually added as additional insureds to their vendors’ policies or that their vendor’s coverage is inadequate.
Continue Reading

A merger, acquisition, or other corporate transaction can raise a number of issues for the insurance coverage of the parties involved.  The transaction may affect the parties’ current coverage and their rights under their historic policies.  The parties will want to specify clearly the intended interplay of other aspects of the deal, such as indemnities, with available insurance.  And the parties may wish to consider purchasing various types of insurance for aspects of the deal itself.
Continue Reading

It is becoming increasingly important for tech companies considering a merger, acquisition, or other corporate transaction to understand the use of Representation & Warranty Insurance (“R&W Insurance”). R&W Insurance is a type of insurance policy purchased in connection with corporate transactions; it covers the indemnification for certain breaches of the representations and warranties in the transaction agreements. It is designed to provide additional flexibility in addressing these obligations by, for example, reducing or eliminating the need for an escrow by the Seller. 
Continue Reading

I have several times discussed the need for cyber insurance that will actually cover reasonable claims; a need that still seems to exist. The case of Hub Parking Technology USA v. Illinois National Insurance Company (https://www.law360.com/articles/1170778/parking-tech-co-says-aig-must-defend-it-in-privacy-row) that was brought in Pennsylvania District Court in June of this year illustrates this problem. Hub bought security and privacy insurance that was intended to cover security breaches and disclosure of personal data in violation of privacy rules. Hub was then sued in underlying litigation for printing parking receipts at the Cleveland Airport that showed eight digits of credit card numbers instead of the standard last four digits permitted under various state statutes and case law. When Hub submitted the claim to its cyber insurer, the cyber insurer rejected the claim based on its conclusion that there had been no loss of privacy or security information, as well as on several exclusions, such as those for contractually assumed liability and intentional acts. Although the insurer may have had a legitimate complaint that there really was no damage from this alleged violation (and the plaintiffs had not alleged that anyone suffered actual damage or identity theft arising from the parking receipts at issue; they rather relied on an FTC study showing that similar incidents have caused actual damage, so that the potential for damage existed), that should not have prevented the insurer from providing at least a defense.  
Continue Reading

A policyholder is usually thrilled when its insurer agrees to provide a defense of a claim. However, all too often, an insurer’s position on how that defense is to be provided surprises the policyholder. Sometimes, the policyholder learns for the first time that it does not have the right to select defense counsel. Other times, it learns that it is allowed to select defense counsel but must do so from a list of pre-approved panel counsel. In yet other circumstances, the policyholder is permitted to select its own defense counsel but may be limited to the rates approved by the insurance company (which are sometimes far below what the policyholder’s preferred counsel is charging).  
Continue Reading

Directors & Officers liability insurance—commonly known simply as D&O insurance—is meant to protect corporate directors and officers from, among other things, claims alleging breaches of duty and management failings that adversely affect the value of the company’s stock. And any event in which directors or officers are deemed to have had an oversight function could ultimately result in a claim that floats up to the director- or officer-level if the company’s stock suffers. 
Continue Reading