How to reduce liability claims against your business

The main reason to avoid business liability claims is simple: they can take a big bite out of your bottom line. The median cost of a business liability lawsuit is about $54,000. Plus, a lawsuit can tarnish your reputation and drive away future business.

Given the many business liability claims your tech firm could face, it's important to carry the right insurance coverage. However, there are also plenty of ways you can help lower your liability risk to avoid claims altogether. Here's how to prevent these disputes from disrupting your company and draining your bank account.

Any mistake or misstep by your tech company could turn into an expensive professional liability lawsuit. Unfortunately, tech businesses that provide expert advice or services are especially vulnerable to errors and omissions claims.

Missed deadlines, unfinished projects, and other mistakes are common reasons for liability lawsuits. If a client believes your actions or negligence cost them money, even if you are not at fault, you could be sued.

That’s why IT consultants and other service-based tech businesses carry professional liability insurance, also known as errors and omissions insurance or E&O. It covers the legal costs of a lawsuit, including any judgments or settlements.

However, there are a number of steps you can take to prevent a lawsuit from ever happening:

Use a detailed, written contract. Your client contracts should clearly explain the scope of work you’ll perform, the costs, and any deadlines. Depending on the nature of your work, you may even include a hold harmless agreement to protect yourself from liability. If you’re unsure of how to draft a detailed contract, an attorney can help.

Keep the lines of communication open. One of the best ways to keep your client happy is to keep them informed. Make sure everyone is clear on expectations and responsibilities, and give frequent updates on your progress and any potential obstacles.

Back up your work. In the event that your business falls victim to a fire, hurricane, or some other catastrophe, you need to keep your business running. Back-up your files and other materials and have a disaster recovery plan ready to avoid missed deadlines or other breaches of contract.

Pay attention to quality control. It may seem like a simple step, but it’s easy to rush through quality assurance checks when you’re trying to keep a project on track. Whether you’re building a website, developing an app, or recommending new software, make sure you stick to a focused QA process.

Some of the most common liability risks to your business involve some type of injury to third parties. You could face a liability claim if a client is injured at your business, or if your employee damages a client’s property. You could also face a liability claim for copyright infringement, libel, or slander.

General liability insurance will protect you from lawsuits over any of these claims. It’s the most common form of business liability insurance, and often required by lenders and client contracts.

While insurance offers critical protection if someone files suit against your business, you can also take steps to reduce the chance of a general liability claim:

Reduce clutter in your place of business. Items like cords and boxes can pose a tripping hazard to visitors, as well as employees. Keep all walkways and exits free of debris that might cause an injury.

Post signs to alert visitors to potential hazards. Whether a hazard is temporary, like a spill, or permanent, like stored chemicals, be sure you have signs and labels to warn of possible dangers.

Maintain your property. For example, a broken step or icy sidewalk could result in a customer injury.  Evaluate any slip-and-fall risks and promptly address them.

Use caution when posting to social media. One rude or false post about a competitor by you or an employee could lead to accusations of slander or libel.

Avoid copying code, graphics, and music. Whether you’re developing software or designing a website, you could face a copyright infringement lawsuit if you copy someone’s protected intellectual property.

Cyber risks are a growing source of liability claims for companies – especially for tech businesses. If you or your client experiences a cyber incident like a data breach or a ransomware attack, chances are good that you’ll face a lawsuit.

The costs of a data breach incident can be steep, but cyber liability insurance helps cover your expenses. There are two types of cyber liability coverage: first-party and third-party cyber liability insurance.

First-party insurance covers the expenses associated with a cyber incident at your business. Third-party coverage protects you if a client sues you for not preventing a data breach or cyberattack on their company.

Most tech businesses opt to purchase a technology errors and omissions policy (tech E&O), which combines errors and omissions and cyber liability coverage. A tech E&O policy typically includes both first- and third-party coverage. Be sure to check with your insurance agent to confirm what your policy covers.

Here are some ways to avoid triggering a third-party liability claim:

Create a solid client contract. Make sure your contract clearly defines the services you’ll provide and specific liability limitations.

Encrypt sensitive data. If you handle cybersecurity or manage your clients’ IT systems or networks, it’s vital to encrypt sensitive data. This is an added layer of protection against cybercriminals.

Keep firewall and antivirus software updated. Ensure software is updated with the latest security patches to protect your clients from security vulnerabilities.

Train your client on cybersecurity best practices. Educate your client about the importance of strong passwords and how to spot suspicious downloads or phishing attempts.

Forming an LLC can reduce your personal liability risk by protecting your personal assets such as cars, bank accounts, investments, or homes from creditors looking to collect on business debts. An LLC should safeguard personal property, unless you engage in criminal activity, cosign for a business loan, or use your own property as collateral for a company loan.

Even if you take every step to reduce liability claims, your tech company may still face a lawsuit. You could be sued even if you’ve done nothing wrong.

That’s why insurance coverage is the foundation of an effective risk management strategy. Our expert agents can help you evaluate your needs and find the right liability protection for your business.