Technology E&O

5 Insurance Issues To Consider In Tech Transactions

A version of this article originally appeared in Law360 on August 25, 2016.

Technology services and software companies frequently face insurance issues when negotiating their intellectual property license or other services agreements, particularly in this era of data breaches and cloud computing. Numerous questions present themselves. Which party bears the risk in the event of a data breach? Does the company providing the indemnities have insurance to stand behind them? Whether your company is providing a service, engaging a vendor or negotiating a license agreement, keeping these five insurance issues top of mind can help safeguard your continued success.

Insurance as an Indemnity Backstop

Indemnification provisions are standard in commercial agreements, and these provisions frequently include boilerplate language that may be overlooked by a party. While such a provision will serve as the primary risk transfer mechanism in the agreement, insurance can provide an important backstop. If your company is providing the indemnity, you will want to check your policies to see if they provide coverage for the potential liabilities at issue. Many policies, including commercial general liability (CGL) policies, exclude coverage for liabilities assumed under a contract. For example, the Insurance Services Office (ISO) standard CGL form includes an exclusion barring coverage for bodily injury or property damage the policyholder is obligated to pay “by reason of the assumption of liability in a contract or agreement.” The exceptions to this are if the policyholder has the liability absent the contract or if the contract was previously identified as a covered “insured contract.” Other policies, however, such as technology errors and omissions (tech E&O) policies, do not include this limitation. Some tech E&O policies state that a breach of contract exclusion does not apply (and thus the policy provides coverage for) liability “assumed in any hold harmless or indemnity agreement.” If your company is being indemnified by the counterparty party, you will want to know whether that company has the financial resources, including insurance coverage, to stand behind the indemnity.

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Million Dollar Lawsuits in 140 Characters or Less

shutterstock_174838673-2It seems like every business these days—from technology start-ups to hardware stores—is engaging its customers and clients through posts, tweets and hashtags (and blogs like this one). For example, last year, Duane Reade tweeted a photograph of actress Katherine Heigl carrying the drug store’s bag, and wrote: “Love a quick #DuaneReade run? Even @KatieHeigl can’t resist shopping #NYC’’s favorite drugstore[.]” As a result of the tweet, Ms. Heigl sued Duane Reade for false advertising and misappropriation of her likeness, and sought $6 million in damages. While the parties ultimately settled for an undisclosed sum, Duane Reade’s misstep is a prime example of the risks companies face when using social media.

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