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Beyond Data Breaches: How Unplanned Outages Can Cost You

Beyond Data Breaches: How Unplanned Outages Can Cost You

An IT outage lasting a few hours can cost IT companies hundreds of thousands in damages. Find out why and how to prevent that loss.

Friday, February 21, 2014/Categories: errors-and-omissions

A recent story on FierceHealthIT.com reported that many healthcare providers are unprepared for IT outages, which cost an average of $400,000 per incident. Despite the devastating cost, more than 80 percent of health IT executives felt they were “not fully prepared” to handle an unplanned outage, data loss, or other IT disaster.

IT outages can happen in any industry, not just healthcare. Even supposedly stable cloud platforms have experienced major outages this year. For example, Microsoft's recently renamed OneDrive cloud-storage platform has struggled through a number of major outages. (We outlined some of the service-related risks in cloud computing in our blog post "New Worries about the Hidden Costs of Cloud Computing.")

While many of your concerns are about data security, don't forget that outages and data loss can also lead to lawsuits filed against your IT business.

Common Causes of IT Outages and Data Loss

As you know, IT is about preventing mistakes, making networks work smoothly, and quickly resolving problems. You also know that you can't prevent all issues, especially those caused by unavoidable outages. The most common causes of outages include…

  • Hardware failure.
  • Software failure.
  • Data corruption.
  • SaaS / cloud outage.
  • Loss of power.

Sadly, IT companies can be sued for power outages. This Crain's article profiles how Sears lost $1.5 million dollars in sales during a five-hour outage and is now suing its IT vendors, whose power backups failed to keep Sears’s data center running.

It's important for IT consultants to disclose the risks associated with any project (including the obvious ones like power failure). By doing so, you can reduce the likelihood of a lawsuit.

For instance, a client might not want to purchase uninterruptible power supplies (UPS) for their machines. They might cost too much. However, an IT consultant should tell their clients about how this option can help them survive a power outage by giving them time to save their work and shut down their computers. By disclosing these risks to your client, you prepare them for the possibility of an outage and reduce the chance that they’ll be caught off guard by loss and sue your business.

Unfortunately, even if you disclose every risk, a client can still claim in court that you were negligent or didn't take sufficient steps to prevent an outage. In short, they can find a way to blame you.

How to Protect Your IT Company from Lawsuits over Outages and Data Loss

Even if a network administrator or other tech takes all precautions to back up data, mirror data, and build redundancy into their network designs, an outage can still occur and cause a loss. As we saw, the cost of these outages can quickly reach a half-million dollars (or more). Because IT is entwined with a business's sales, productivity, and general performance, you can be sued for…

  • Lost profits.
  • The cost to replace failed infrastructure and hire new IT technicians.
  • Lost customers and weakened customer relations.
  • Loss of productivity.

You can also be found liable for failures with SaaS, cloud services, or software that you didn’t write but recommend. If you suggest a cloud-based data service to handle sales on a client's mobile platform, you can be liable if that service stops working (or is incompatible with future iOS upgrades) and the client loses sales.

Fortunately, Errors and Omissions Insurance covers all these liabilities. Whether you're sued for a vendor outage or a network failure caused by your IT engineers, Errors and Omissions Insurance can pay for your legal defenses and the damages you owe the client.

If you'd like to learn more about the cost of E&O coverage, check out our sample E&O Insurance quote for IT companies.

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