Original URL: https://www.theregister.co.uk/2003/07/02/liability_loopholes_catch_uk_tech/

Liability loopholes catch UK tech firms

Customers make hay

By John Leyden

Posted in The Channel, 2nd July 2003 14:43 GMT

Technology companies were today warned to check for costly contract liability loopholes in their insurance policies.

According to specialist insurer Hiscox, a significant number of UK technology companies and consultants have insufficient or no insurance against contractual disputes.

The company, which underwrites risks for technology companies in the UK, warns that a number of insurers do not offer adequate cover or have access to the appropriate expertise when it comes to breach of contract claims.

With nearly all technology work performed under contract, this is the end client's foremost point of recourse for disputes over the performance of companies, products and services. Contractual liability is an especially a big issue for the software industry, according to Hiscox.

Stephen Wares, technology underwriter at Hiscox, told The Register that suppliers don't necessarily need to have done anything wrong to get into expensive contractual disputes. Particularly in the current tough economic climate, clients will sometimes use supposedly poor performance as a way to get out of contracts they can no longer afford.

This represents a risk to suppliers. Suppliers can insure against this risk but they need to make sure the cover they obtain is adequate.

Wares explained: "Contractual liability is a very complex area and technology companies really do need to check what they are, and what they are not covered for within their current insurance policy. The fact that a number of the leading insurers in this sector are not providing significant cover for breach of contract is extremely worrying when you consider that the vast majority of claims within the technology sector are brought against technology companies for breach of contract."

Hiscox warns that technology companies can face "massive legal bills", as well as damage to commercial reputation, if they are subject to a claim without the right insurer and with no access to expertise in contractual disputes.

Wares added: "We estimate that more than 20 per cent of the technology companies currently insured in the UK will not be adequately covered for contractual disputes - and more worryingly this will not come to light until they have a large claim which insurers deny."

Following a number of incidences where insurers have rejected claims as a result of loopholes in cover, Hiscox is urging insured parties and brokers to check the small print of their current policies to make sure they are adequately protected. ®

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