August 30, 2011
Insurer's Data Shows that Breach of Contract is Top Risk for Tech Companies
The top risk faced by technology companies is a client suing them for breach of contract, according to data from Hiscox. The business insurer analysed data from over five years to establish that 49% of all technology professional indemnity claims handled have stemmed from contract breach.
Some of the most common causes that tech companies’ clients use as the basis to sue include project delay and the supplied service being regarded as not fit for purpose. However, Hiscox has also seen disagreements over fees and material defects such as loss of client data.
Alan Thomas, technology risks and insurance expert at Hiscox, said: "Breach of contract is the most common cause of professional indemnity claims we see when it comes to the technology sector. Very often this is down to poorly worded contracts which can lead to misunderstandings between suppliers and their clients.
"Smaller businesses can also often feel pressured into signing customers’ contracts or terms and conditions without feeling able to challenge or even review specific clauses.
"One of the most effective ways to reduce the chance of a claim being made, which in turn reduces the chance of expensive litigation and, as importantly, a breakdown in relationships, is to ensure that contracts drafted at the outset lay out clear responsibilities and that there is an agreed process if mediation is required ."
Other risks that technology companies face include intellectual property claims, for example accidentally breaching someone else’s copyright, and theft of high value equipment from offices or data centres.
[Meredith R. Miller]
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I'm not sure about this. 49% of the indemnity claims might come from breach of contract, but what if a patent suit threatens to destroy your entire business in one go? This American Life had a great episode on the subject. You can give it a listen here: http://www.thisamericanlife.org/radio-archives/episode/441/when-patents-attack
Posted by: Jeremy Telman | Sep 4, 2011 5:11:06 PM