General Liability Insurance For Independent IT Contractors
Dan Levenson April 05, 2016
Suppose, working as an independent IT contractor, you design a customer database for a client. Imagine that an unexpected glitch keeps anyone in your client’s company from using the database for two weeks. Do you think you could afford the damages you could have to pay if the client sues you, claiming to have lost $500,000 in sales because your system didn’t work?
That is just one reason why you need general liability insurance.
You may believe it could never happen to you. You might believe your software could never completely fail. You may think your solution could never introduce a virus into a client’s system or allow a hacker to access the system or that you would never miss a deadline on a crucial assignment.
The problem is, whether or not you would lose a lawsuit, your legal expenses could be enormous–even if you win. You might go bankrupt defending a baseless claim.
How General Liability Insurance Can Help
Liability insurance could cover your legal expenses, whether or not you would win a suit. It could pay the $500,000, if a judge would agree with the client suing you.
There are a variety of reasons an independent contractor working in the tech/IT industry needs general liability insurance:
- The nature of your work puts you at a higher risk than other types of businesses. This is especially true because jobs and technologies are so new, and the law is just now being shaped and defined. As a result, there is no clear standard you can use to defend that would show what a person could reasonably expect from your services.
- Dissatisfied clients could sue you. You could be sued if a client isn’t satisfied with the job you have done, whether or not the claim would be valid. The client may believe your service or product should do something different than it does, even if his expectation is unreasonable. You may believe the product works perfectly. If the two of you can’t negotiate a solution, you may be sued.
- Dishonest clients who have well-staffed legal departments may sue you–simply to avoid paying you for your services. Can you imagine explaining the situation to a judge, who may not understand technology? You can see why liability insurance is beneficial.
- You could also be sued for something you did (an error) or something you should have done but didn’t (an omission).
Other Ways To Stay Protected
While general liability insurance covers the majority of your potential risks, it’s important to make sure that you have coverage for everything it doesn’t cover. Here are some of the kinds of insurance you may need as an independent contractor working in the tech/it industry:
- Network Security Liability will protect you from losses associated with unauthorized access to your data. This could include data theft of a client’s information, computer viruses that damage his system, denial of service attacks, breaches, unauthorized e-commerce transactions, and more.
- Errors and Omissions Insurance will protect you against claims your professional work or negligence caused a financial loss for a client or customer. It is also known as E&O insurance.
- Network Security Liability will protect you from losses related to unauthorized access to data you are maintaining for a client. This could include breaches, denial of service attacks, data theft, unauthorized e-commerce transactions, viruses, and more.
- Professional Liability Insurance coverage is similar to E&O, but broadens the coverage to protect you against claims of cyber liability or copyright infringement.
- Commercial Property Insurance will protect commercial property on the premises, include computers, printers, desks, phones, and similar property. It will protect you against physical damage from fire, theft, vandalism, and more.
Even though you may have not considered it before, not having adequate insurance while working as an independent contractor can cost you a lot of money, if someone ever decides to take legal action against you.