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The Face of E&O for Data Miners

The Face of E&O for Data Miners

Data mining is one of the new comers in the tech world, which means it's exposed to more E&O liabilities.

Wednesday, March 5, 2014/Categories: errors-and-omissions

Data mining and business intelligence firms face numerous professional liabilities. As data experts, you can be asked to forecast sales and build business plans to fit the demographics and purchasing tendencies of a client's customers. But as it turns out, even the best data researchers make mistakes.

The Washington Post profiled the problems of one data-researching firm that was hired by the state of Maryland to predict its healthcare enrollment numbers. University of Maryland's Hilltop Institute went to great lengths to make accurate predictions, but a simple mistake threw its calculations off. Way off.

Though they triple checked their calculations, these researchers overlooked one obvious error: they set the wrong parameters. The models they ran calculated health enrollment based on fiscal years, rather than calendar years, which caused their estimates to be off by 100,000. That's a huge error. Caused by a simple mistake.

Business Intelligence: Young Industry Means More Liability

Data mining firms like the University of Maryland's Hilltop Institute could face an E&O lawsuit over any mistakes they make in their research. Fortunately, Errors and Omissions Insurance covers disputes over…

  • Inaccurate forecasts.
  • Late or partial work.
  • Bad recommendations or advice that causes a client to lose profits.

But data miners have it harder than those in some other industries. Your industry is relatively new, which means courts don't always know what to make of it. How liable are you for a client's lost profits? What is a reasonable margin of error for your predictions? In fact, your liability may be changing as we speak. Let's look at two lawsuits that could change data mining liabilities.

Two Big Data Mining Lawsuits on the Horizon: Why Facebook and Google Are Being Sued for Data Mining

Two lawsuits have targeted Facebook and Google for mining user data and selling it to marketers. Data mining professionals should keep an eye on these cases because the outcome will affect how they can use customer data mined from web apps.

A FoxBusiness.com article details how Facebook actually scanned its users' messages and mined data from them. The social networking company incorporated this information into its algorithms and occasionally shared that information with advertisers. As a data mining professional, you might be wondering doesn't Facebook own its user information? That's exactly what makes this issue so tricky.

Facebook's Terms of Use clearly says it does own the data, but consumer advocate lawyers are arguing that users can and should expect their private messages to stay private. The lawsuit is ongoing and the final decisions could affect the future liabilities of data mining companies.

According to the Register, Google is now facing a similar lawsuit. Google sells a version of Gmail to universities to use as their email service. However, unlike standard Gmail, this version doesn't have ads and Google claims it will not use university and student data for marketing purposes.

However, Google indirectly uses this data. Google mines Google Apps for Education and incorporates that information into its general algorithms, which it then uses for marketing purposes. So in one sense, it is using university email data for business. Confusing, huh?

Both these lawsuits point out that there is some gray area when it comes to data mining – especially with data mined from web apps and messaging services. (For more information on lawsuits, check out our errors & omissions blog posts.)

How Data Miners Can Be Protected with E&O Insurance

E&O Insurance is vital for those in newer industries like data mining and business intelligence because courts often don't understand the work you do. While Google and Facebook fight the courts over consumer privacy issues, you need to make sure to cover your basic small business liabilities.

Clients can sue you over missed sales forecasts, inaccurate projections, and other business intelligence miscues. These client lawsuits are covered by an E&O Insurance policy, which pays for your court costs, lawyer's fees, and damages you owe clients.

To learn more about Errors and Omissions costs and coverage, visit our sample insurance quotes page or contact one of our insurance agents.

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