With the Professional Indemnity Insurance, IT Firms get the cover for legal expenses and cost occurred with any claim filed against them by any of their clients.

The primary goal of a professional indemnity insurance is to safeguard IT professionals against any financial losses from lawsuits, which can be raised against them by their clients or shareholders. Also called Errors and Omissions Insurance policy, this plan is meant to pay for defence expenses along with the claim amount that the policyholder is legally responsible for paying to the third-party.

​IT Firms are covered for the following:

  • Unintentionally breaching of a binding contract with a client – Breach of contract is the most common insurance claims raised against IT Firms, and this policy allows the coverage of such claims as a standard clause.
  • Breaching of duty of care or negligence – It covers bad advice given to a client or making professional mistakes in the course of the work.
  • Infringing intellectual property rights – Mainly when the IT Firm makes use or publish from another website’s content without permission from the latter.
  • Breaching of confidence –Sharing of sensitive or confidential information of a client/any third party without prior consent of the latter.
  • Defamation – If there have been damaging or false claims made against an organisation or person.
  • Civil Liability – Even if any claim is made against the IT firm which is not included in the contract and it has not been excluded by the policy’s conditions then it is covered.

Irrespective of how experienced professionals are, mistakes are bound to happen. Therefore, it makes complete sense to go with a professional indemnity insurance policy that pays the compensation to the third-party in respect of errors on the part of the policyholder while rendering professional services.

Case: 1

Incepted in 2011, T.S Software is a leading name in the IT sector. Last year, the company bagged a contract of developing an attendance and payroll software for J.J Jewels. As per the contract, T.S Software must complete the order in 15 days.

Though T.S Software developed the software within a stipulated time frame; there were some grave issues in it. Like, even absent employees’ were showing present by the software and there salary calculations were done in the same manner as that of present employees.

Due to this error, the HR department of J.J Jewels had to cross verify the details manually and the entire salary process got delayed by ten days. It not only affected the employees, but it also had an adverse impact on the reputation of J.J Jewels as well.

Now, J.J Jewels filed a case against T.S Software and held it responsible for the tarnishing of its image and employees’ dissatisfaction. Luckily, T.S Software had a professional indemnity insurance, and the company approached the insurer who thoroughly examined the cause and found that the software was apt for the small company and not meant for the large companies, like J.J Jewels.

The insurer paid compensation to J.J Jewels along with covering defence costs incurred by T.S Software in contesting the case in the court. Without the professional indemnity insurance, T.S Software would have to bear the compensation amount solely.

Case: 2

A market researcher, Mr. Piyush Jain had requested a specialist IT firm— NS IT, to code and store all the data in software that had been collected. However, NS IT misinterpreted the instructions received from the market researcher and due to this error, the entire data was incorrectly coded.

Due to this error, the data couldn’t be used by Piyush who also suffered a major loss. The market researcher filed a case against NS IT for the delay and the cost of recoding the data. Luckily, NS IT had professional indemnity insurance cover, and the company approached the insurer for covering the compensation amount.

The insurer carefully analysed the case and later covered the loss due to errors. It would have been difficult for NS IT to settle the compensation amount without professional indemnity insurance policy.

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