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Mark Grossman

Technology Insurance

20 June 2000

Well, the hurricane season is here again. Your business probably has insurance in place for hurricanes, but do you have insurance for a computer disaster, or what we might call a "Technology Twister."

This time of the year holds a very special place in every Floridian's heart. It brings back such wonderful memories-the massive crowds at the supermarket as you vie to grab that last can of corn from an ever-depleted store shelf, the frantic search for size "D" batteries, and the 25 yard dash to the bottled water aisle. Ah, nothing like memories.

While most people insure their homes and businesses against hurricane, few businesses insure themselves against Technology Twisters. These storms don't appear on the weather map. In fact, they usually strike with little or no warning. Recently, they've caused over $10 billion in damages. Worse yet, the odds are good that these storms will hit you more often than hurricanes.

While the Technology Twister may use its winds and rain to cause physical damage, it also packs a virtual wallop using its arsenal of viruses, hackers, disgruntled employees, poorly drafted technology agreements, and every other risky thing that you can imagine in the world of technology and the new business of e-commerce.

Today is the day to ask yourself whether you would feel adequately insured if a Technology Twister touched down on your corporate computers. If the answer is no, then you need to deal with this issue now. Don't wait for a disaster to strike before you feel compelled to get insurance "for next time."

Get the Insurance You Need

In simpler times, the rule of thumb for good business insurance coverage was that you needed errors and omissions, business interruption, and property damage policies. However, with the advent of e-commerce, the rules and risks have changed. Amazingly, many insurance policies haven't. Today, any business that uses the Internet for any reason exposes itself to new risks that could have potentially devastating consequences. Moreover, we're not just talking about viruses here.

Try some of these on for size: If a court finds you guilty of improperly using someone's trademark online, you could face a fine of up to $100,000.00 per infringement. If you use someone's patented idea on your website, you could pay damages up to three times of the amount of profits that you made from the site. If your firewall fails to stop someone from stealing your company's sensitive data, you could face millions of dollars in liability.

Are you worried yet? Let's keep going.

Since there are no geographic boundaries on the Internet, your web activities might land you in a courtroom in Europe. Or Asia. Or South America. Or Iraq. What do you think your insurance company would do if you told them that you were being sued in Switzerland because your website violated Swiss laws? You might find them yodeling instead of paying.

Have I scared you? I hope so.

According to Rick Barnes, a commercial insurance broker with Acordia, ninety-five percent of the businesses that need technology insurance, don't have it. Of course, these businesses won't even realize they don't have it until the Technology Twister permanently reshapes their virtual landscapes.

Choosing a Policy

Clearly, if your company relies heavily on technology or uses the Internet for business, you should be in the market for technology insurance. The good news is that many insurance companies offer such policies. The bad news is that they often differ significantly. You'll have to do your homework before picking the policy that's right for you. Here are some tips to help you decide.

  1. Figure out what you need before committing to a particular policy. To do this, you may want to consult your technology lawyer who can evaluate your company's exposure and point out areas that require significant protection.

    If you decide to do it yourself, you'll need to think about all of the areas that expose your company to risk. For example, ask yourself questions like, what security policy does my company have in place, and how is it enforced? Where does my company store confidential or sensitive information, and who can access it? What measures are in place to prevent my company from infringing another company's copyright, trademark or patent?

    Obviously, this is a short list, and there can be an endless number of areas to investigate. The point is that you must fully understand what you have, before you can decide what you need.

  2. If you don't ask for technology insurance, you probably won't get it. That's because most general insurance policies fail to either include technology-related incidents in their descriptions of coverage, or exclude such areas entirely. To avoid problems down the road, ask for the policy by name.

    Bear in mind that technology insurance policies are sometimes called "Internet Professional Liability" policies, "Error & Omissions/Media" policies, or simply "Internet Liability" policies. In any event, if you don't see such a policy in your coverage plan, be careful. You probably don't have it.

  3. Read the policy carefully, and don't assume that you're covered because you "signed on the dotted line." Often, buried deep within the terms and conditions of the policy, there will be limitations or exclusions of coverage which might be very important to your business. Let's take this scenario as an example.

    Let's say that your business gives online stock tips to its clients. One day, one of your disgruntled employees decides he's not making enough money, so he intentionally arranges a "pump and dump" scheme.

    The employee buys a stock, then e-mails your clients and convinces many of them to buy the stock too. The stock goes up, the employee sells his shares and, predictably, the stock quickly tanks. Not only do your clients sue you, but the Securities and Exchange Commission jumps on the litigation train as well.

    Are you covered? Maybe. Not all policies will cover you if you're sued by a government agency. Some won't cover you for the intentional acts of your employees. If the policy is ambiguous, you may find yourself in court just trying to determine the extent of your coverage.

  4. Finally, spend the money on insurance. It's not cheap, but neither is a lawsuit. To keep the cost of the premium down, consider purchasing a policy with the largest deductible that you can afford to lose.


    To some extent, the Technology Twister has affected most of us. Without a doubt, it's the reason why we buy anti-virus software, build powerful firewalls, and hesitate before giving out our personal information over the Internet.

    As businesses further embrace and incorporate technology, the Technology Twister is going to touch down more often, with less notice, and cause greater damage.

    Take the threat seriously, and handle it as if your livelihood was on the line.

    After all, it just might be.

Technology Insurance is republished from
Mark Grossman
Mark Grossman