Colonnade Insurance S.A. introduced changes to the professional liability insurance for IT specialists, significantly increasing the financial security of the clients.
The new terms provide comprehensive protection against the consequences of professional errors, a broader scope of liability, and more precise definitions. This summary from Monika Rychlik Third party liability product developer presents in detail the most important changes that raise the standards of insurance protection in the IT industry.
In a dynamically changing digital environment, IT specialists face ever-growing challenges. Every line of code, every system implementation, or software update carries financial risk. The IT sector is particularly exposed to claims resulting from errors or omissions in the services provided. Even the smallest coding error or a project delay resulting from it can lead to significant financial losses. Our enhanced insurance is designed to safeguard against these risks.
Regardless of whether the insured is a network administrator, programmer, tester, analyst, UX/CX specialist, project manager, or another IT professional, professional liability insurance will address the risks associated with conducting the specified activities.
Below we present the most important changes.
COVERAGE FOR GROSS NEGLIGENCE
What is gross negligence in the IT industry?
Gross negligence in the context of IT is a situation where a specialist fails to exercise due care to a much greater extent than in the case of ordinary negligence. This could be, for example, not making a backup of critical data, omitting essential security tests, or implementing a solution without necessary safeguards.
What are the benefits of the new coverage?
The new insurance terms clearly confirm that damages caused by gross negligence are fully covered by the insurance. This means:
- Greater peace of mind for clients when carrying out even the most complex projects,
- Financial security even in situations where an error results from a more serious oversight,
- The ability to focus on business development instead of worrying about potential claims.
Example of a covered loss
Scenario: A client implements a warehouse management system for a large online store. Due to a tight schedule, the programming team skips detailed load tests of the system before its production launch. During the pre-holiday season, under increased traffic, the system fails, preventing orders from being processed for 48 hours. The store incurs losses of EUR 82, 500 due to unfulfilled orders and lost customers.
- Before the change: The event might not have been covered, arguing that skipping load tests constituted gross negligence.
- After the change: The full amount of the claim is covered by the insurer, allowing the client to maintain a good relationship with their customer and avoid serious financial consequences. The client can focus on repairing the system and minimizing the effects of the failure, instead of worrying about covering the damage costs.
TORT LIABILITY
What does tort liability mean in IT?
Tort liability is liability for damage caused to someone with whom we do not have a contractual relationship. In the context of IT, this may concern situations where the client’s professional activities cause damage to a third party who is not their direct client. Until now, most policies have focused solely on contractual liability (towards direct clients), leaving a gap in protection.
What are the benefits of the extended coverage?
The new insurance terms also cover tort liability related to professional IT services. This provides:
- Comprehensive financial protection covering a wider range of entities that may bring claims,
- Greater security in projects involving multiple stakeholders.
Example of a covered loss
Scenario: A company implemented a payment processing system for a large online store. Due to a coding error, customers’ payment card data was improperly secured and leaked. Although the client is the online store, the victims are also the store’s customers, who file claims related to unauthorized transactions on their cards.
- Before the change: The insurance would only cover claims from the online store, but not from its customers, with whom the company has no direct contract.
- After the change: The insurance covers both the direct client’s (the store’s) claims and those of end customers who suffered financial losses due to the data breach. The total value of the damages is EUR 99,000 and is fully covered by the insurance contract, protecting the company from serious financial and legal consequences.
NEW DEFINITION OF EMPLOYEE
What does the new definition of employee change?
In the IT industry, B2B cooperation is common, where specialists operate as sole proprietors and provide services to larger IT companies. The new, more precise definition of employee explicitly includes individuals conducting business activity who provide services to the insured IT company.
What benefits does this change provide?
The expanded definition of employee guarantees:
- Consistent protection for the entire team, regardless of the form of cooperation,
- No need to verify the form of employment when reporting a claim,
- Greater flexibility in building project teams.
Example scenario of a covered loss
Scenario: An IT company is carrying out a complex project for a client in the medical sector. In the project team, in addition to full-time employees, there are three senior programmers cooperating on a B2B basis (as sole proprietors). One of them makes a coding error that causes a system failure and downtime for the client, generating losses of EUR 23,500.
- Before the change: A claim could be denied, arguing that the damage was caused by someone not considered an employee under the insurance terms.
- After the change: The full amount of the claim is covered by the insurer, as the new definition of employee also includes B2B collaborators.