Liability 101 for Your Tech Business
As soon as you hang an “Open” sign, your new tech business is vulnerable to liability lawsuits. While you shouldn’t lose sleep imagining all the worst-case scenarios that could befall your fledgling IT startup, it is a good idea to learn about various ways your business could be found liable and protect your assets with technology liability insurance.
How Can You Be Found Liable? Let Us Count the Ways
Just like owning a home, owning a business opens you up to the fun world of liability and the lawsuits that sometimes follow. Your IT business could be found liable for:
- Bodily injury.
- Property damage.
- Personal injury.
- Libel or slander.
- Copyright infringement.
- Data breach.
Let’s take a look at as few hypothetical scenarios that could befall your small IT business:
- A client goes into your kitchen for a cup of coffee and slips. He drops his phone, shattering it, and also breaks his wrist (probably trying to protect his phone).
- An employee driving to repair a computer at a client’s office gets into a car accident.
- You design a website for a client and they say it doesn’t have all the functionality you promised, the page-load times are too slow, and you neglected to include title tags and meta data.
- You forget to install an SSL certificate on a client’s e-commerce website.
- While attending a Chamber of Commerce event, you complain about one of your clients to a friend – not realizing your client is standing right behind you and hears your whole tirade.
All of these examples could result in a lawsuit, but with the right type of technology liability insurance in place, you may have coverage for the cost of any legal action. There are several options that are useful for a small IT business, but you’ll probably want to start with…
General Liability Insurance: Slips, Trips, and More
Most small IT businesses purchase General Liability Insurance as a foundation for their protection plan. It’s commonly known as slip-and-fall insurance because it covers third-party accidental injuries and property damage. In our example of the client wiping out in your kitchen, General Liability would pay to replace your client’s phone, as well as his medical bills.
Another great feature of General Liability is the coverage it provides for third-party advertising injury, which includes…
- Invasion of privacy.
- Copyright infringement.
If you accidentally use a snippet of code you did not have the rights to or trash talk another IT business while giving the keynote address at a local tech conference, your General Liability policy may help cover resulting legal expenses. Read our article “Answers to Technology Businesses’ Top Five General Liability Questions” for a more in-depth look at General Liability.
Professional Liability: The Insurance Policy of Many Names
We enter most professional relationships good intentions, but sometimes things just don’t work out – or go terribly. It could be for a variety of reasons. Maybe it was a simple miscommunication with the client, or perhaps you made a coding mistake.
Whatever the case, Professional Liability Insurance (also known as technology Errors and Omissions Insurance) can protect you by covering your legal expenses if a client thinks you screwed up in some way and sues you. This policy comes into play if a client claims…
- You missed a deadline.
- The finished product you delivered does not match the work outlined in the initial contract.
- Your work is incomplete or otherwise unsatisfactory.
“As it comes to dealing with clients, having something like Errors & Omissions Insurance is very helpful,” says
Nina Kaufman (@NinaKaufman),
business attorney and strategist at
Ask the Business Lawyer.
“That’s the sort of thing if you’re working on a client’s computer system, a virus gets installed, coding goes a little wrong, and everything goes kerflooey, Errors & Omissions protects your activities, and it can protect the activities of people working for you.”
Cyber Liability Insurance coverage is often included in a standard E&O policy, and it can cover the often high costs associated with a data breach. Check out “7 Key Features of Your Professional Liability Coverage” to learn about more benefits of your E&O coverage.
Workers’ Compensation: Protecting Business Owners from the Cost of Employee Injuries
While most IT business owners understand that Workers’ Compensation Insurance pays for work-related illnesses and injuries, there is often confusion as to when they need to have it, especially if they don’t technically have any employees – only subcontractors or freelancers.
The rules are different in every state; some don’t require Workers’ Comp at all. However, most states consider freelancers, contractors, and subcontractors as regular employees when it comes to Workers’ Compensation. Even if you and the contractor both agree that they are not your employee, you could be legally liable for their injuries.
“So if I am the company, and you are the contractor, and I bring you in on a couple of jobs and that is 100 percent of your income, then there could be a risk that if anything happens, you are seen as my employee, then I get stuck for not having the Workers’ Compensation Insurance,” Kaufman explains.
Check with your state to know which rules apply, and be sure to read “Top 10 Workers’ Comp Insurance Questions” for a more comprehensive look.