Have High-Tech Companies the appropriate insurance coverage?

If you are in the high technology industry you may find that standard insurance policies do not cover your needs. For example, if some software does not perform as promised, may cause financial losses to licensees of the software, who may make a claim against the software manufacturer. However, software manufacturers who are sued for such losses may not be covered by standard insurance policies because there is no physical loss. Furthermore, losses of business income due to delay in getting products to market or patent infringement claims are neither contemplated in standards insurances policies.  So, how you can get your High-Technology Business fully covered?

Well, there are three main types of insurance available that may fill the gaps of standard insurance policies in the high technology industry: Project Loss Coverage, Errors and Omissions Coverage and Patent Infringement Insurance.

  • Project Loss Coverage

Project Loss insurance will insure against delays in developing and marketing a product due to unforeseen accidents or interruptions such as a blackout or a fire. Due to high-technology industry is fuelled by technological advancements, high-tech firms spend a great deal of time and money on research and development. The loss of a prototype or the delay in the introduction of a prototype can cause serious financial difficulties.

The accidental physical loss of data, hardware or software necessary to the research and development of new products are covered under Project Loss Insurance Policy as well as the extra expenses involved in getting a delayed project back on track. Some of these expenses may include setting up make-shift operations, overtime, and subcontracting work. Due to delay in production can result in loss of customers; loss of business income is usually covered within Project Loss Policy.

  • Errors and Omissions Coverage

Errors and Omissions insurance will cover liability for breaches of warranties or negligence. It also covers claims against a high-tech company for damages to or loss of intangible property, such as memory and data stored on disk.

When a high-tech manufacturer´s product fails to perform as promised, customers may suffer financial losses and sue them for breach of contract -due to the nonperformance or malfunction of the manufacturer product-. Errors and Omissions coverage will underwrite negligence and breach of contract claims that may be assessed against a high-tech manufacturer.

Nowadays, more than 50% of software vendors and systems houses and about 10% to 15% of hardware manufacturers today have Errors and Omissions coverage. In many cases, software purchasers are requiring that software manufacturers carry such insurance as a prerequisite for doing business with them.  The high risk of errors in complex products and the specific technical requirements involved in developing software makes essential to carry an Errors and Omissions policy.

  • Patent Infringement Coverage

Patent Infringement insurance can cover the costs of certain patent infringement actions and some types of damages that can be assessed against you. Increasing competition in the high-tech field has caused large companies to enforce their patent rights more forcefully. This situation is understandable if we think that after a significant amount of time and money on research and development a “new” process or product, could turn out being worthless because it infringes an existing patent.

Patent Infringement insurance will pay you benefits in the event that a process or product turns out infringing certain types of patents. This said, some exclusions may apply, the most important of which is that the infringement must have been unintentional. Claims arising from infringement of other forms of intellectual property such as trademarks or copyright are not included under Patent Infringement insurance coverage.

How much this Insurance can cost?

There are a variety of factors that insurance companies will look for in order to determine the premium. Most of them are related to the company background such as the history of the principals of the company or the length of time the company has been in the business. But probably the most significant factor is the chance that a company will be subject to damage claims and the expected magnitude of those claims. Another important consideration is the market served: a smaller sales volume usually means higher rates, although the total premium may be smaller.

How do Insurance Companies sell this Insurance?

While not all underwriters have been willing to provide specialized coverage, some are specifically targeting the high-tech industry with insurance packages that combine all of the coverage described above.

Ai Errors and Omissions Insurance has the capacity to provide coverage in this field. Check out our website and have a look at our insurance products. You can apply online to get quotes, instructions and forms emailed to you INSTANTLY!