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IT Consultants Liability: When the Cloud Service You Recommended Gets Hacked

IT consultants need to know whether their E&O Insurance covers them for cloud-related liability.

Monday, March 24, 2014/Categories: cloud-insurance

If you own an IT consulting company or provide IT consulting services as part of a larger business, your revenue depends on the advice you provide your clients. The products and services available evolve continually, which means you have to stay on the cutting edge of trends and developments in order to maintain your credibility and value.

But while it may seem just about manageable to keep up with the latest software, gear, and network options on offer, it’s nearly impossible to keep pace of all the legal and liability-related issues that accompany the latest innovations.

Here’s a quick refresher course (or first-time study) on liability matters related to one of the most popular technology resources available to businesses today: the cloud.

Does Your Errors & Omissions Insurance Cover Cloud Breaches?

What many IT consultants don’t realize is that they could be held liable in the event of a data breach on a cloud-based service they recommended for a client. Imagine this scenario:

  • You recommend cloud-based software to one of your clients as part of your professional consultation services.
  • Your client adopts that software and uses it in everyday business operations.
  • The software provider suffers a data breach and your client’s data is compromised.
  • Your client decides to sue – and names you as a party in the lawsuit.

While it may seem surprising, you could in fact be held liable for damages associated with the data breach. That’s because most cloud-based service providers include clauses in their terms and conditions that limit their liability for breaches and other incidents.

When your client is only able to legally collect a small amount of money in damages from the software company, he or she might name you in a suit in hopes of collecting more. And if that client adopted the software on your advice, a court might find you liable and charge you with paying damages.

Hopefully, if and when that happens, you’ll have an Errors & Omissions policy in place that covers cloud-related issues.

What if My E&O Insurance Protects Me for Less than What I Need?

One key point to keep in mind is that not all E&O coverage is identical. Some E&O Insurance policies cover consultants for less than others – and the only way to determine what kind of coverage you have is to read through your policy or talk with your agent.

If you aren’t sure about the limits of your current E&O policy, now is a good time to double check to ensure that you’ve got protection for the work you do in the future.

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