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Web Hosting Business Insurance: Protection from Lawsuits

Whether you offer virtual private servers, SaaS hosting, file hosting, cloud storage, or other web hosting services, your business faces risks each day. You can be sued by clients, vendors, employees, and even the kind soul who delivers your packages. For real.

One lawsuit can easily jeopardize a business's future. Many small-business owners invest in business insurance policies to spare themselves from bankruptcy over costly legal expenses.

Common Risks Web Hosting Business Insurance Can Cover

So how do you know which type of insurance you might need? Take a look at some of the most common risks for web hosting businesses and the small business insurance policies that can help.

  • Delivery driver injury. While dropping off a shipment of ergonomic keyboards, a deliveryman slips on a strip of ice in the parking lot of a web hosting business. The deliveryman sues the company for $100,000 in damages, claiming his injured shoulder will cost him productivity and possibly a promotion. The business owner has General Liability Insurance, so his insurance company hires a law firm to negotiate with the injured deliveryman's lawyers. The settlement comes out to $50,000, which the insurance policy can cover.
  • App issues. A web app hosting company attempts to do a hot deployment of an updated app for their client. However, it keeps getting the PermGen-out-of-memory error message. The app is down until the problem can be fixed. The client is furious they lost service during the holiday season and sues the hosting company, alleging $40,000 in damages to their brand and lost profits. Good thing the hosting company's Errors and Omissions Insurance can cover the lawsuit costs.
  • Customer data breach. Let's say you own a web hosting business that hosts websites for several clients, including a local candy company. Hackers attack the candy store, stealing customer information and credit card numbers. The owner of the candy shop sues your company for not protecting her customers' information. She wants you to pay for the data breach cleanup costs and for damage to her store's professional reputation. In most cases, your Errors and Omissions Insurance policy includes Cyber Liability Insurance, which can help cover these third-party data breach lawsuits.
  • Office break-in. After a long holiday weekend, a web hosting business owner gets to the office to find that thieves broke in and stole the computers, printers, monitors, and even the coffee machine (a particularly low blow). A Business Owner's Policy, which includes General Liability Insurance and Commercial Property Insurance, can help finance the replacement of the stolen goods.
  • Injured employee. An employee at a web hosting business is texting a response to a client while leaving the office on his way to grab lunch. He gets so caught up in his text that he trips, falling down the stairs and breaking his hip. Workers' Compensation Insurance can help cover expenses related to the incident, including the employee's medical bills and lost wages. If he sues the web hosting company over the injury, Employer's Liability Insurance (often part of a Workers' Comp policy), may help pay for legal expenses.
  • Wrongful termination lawsuit. A SaaS web host fires one of its employees whose sloppy coding caused delays for key server updates. The fired employee files a lawsuit, alleging she's been wrongfully terminated. She argues her supervisor did not manage her projects and should be blamed for the delay, not her. She seeks $100,000 in damages. In this case, the web hosting company's Employment Practices Liability Insurance can help cover legal costs and appoint a legal team to manage the case. That legal help means the employer has a better shot of settling the suit out of court.
  • Employee theft from a client. Let's say a bank hires a web hosting company. During the project, one of the company's employees uses their admin access to a bank's web app to steal money. Fortunately, the web hosting company purchased a Fidelity Bond when it signed a contract to work with the bank. The bond reimburses the bank for the stolen money, the employee is fired, and the web hosting company is able to repair its relationship with the bank.

Web App and Web Hosting Lawsuit Prevention Tips

The insurance policies we discussed above can cover lawsuit expenses, but it's vital for small-business owners to prevent lawsuits in the first place. That's why TechInsurance offers free risk management resources.

On our website, you'll find an eBook that take and in-depth look at how business insurance can protect your IT business, a blog that covers a variety of IT risk management topics, and free sample legal contracts to help reduce your liability. For more pointers, check out our resources page.

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