Insurance reducing risk makes sense

Insurance is rarely a top priority for Cotswold businesses, but it should be, warns Jim Stevenson at Jelf Insurance Brokers in Cheltenham.

Insurance reducing risk makes sense

Insurance is rarely a top priority for Cotswold businesses, but it should be, warns Jim Stevenson at Jelf Insurance Brokers in Cheltenham.

Cotswold technology and innovation companies are entrepreneurial. For such businesses, risk management and insurance are rarely a top priority, but unidentified problems could prevent growth or worse, threaten the business altogether.

Cloud Computing

More businesses are adopting cloud computing, but according to Hiscox Global Technology News, there are risks associated. 'Cloud computing’ refers to hardware and software provided by independent companies via the internet. Advantages include efficiency, cost and scalability, benefits must be balanced against losing in-house control of data processing and IT operations. Such risks include managing a data breach or loss. Customers’ sensitive data becomes reliant on the security and incident response of the cloud service provider. Whose ‘interests’ come first? Will you be able to control or access your cloud provider’s systems to investigate and remediate a data breach? Where do they host customer data? There may be no contractual relationship or rights between the customer and the third party provider that is actually processing, storing and transmitting their data.

There's a trade-off between cheaper technology via the cloud, and safety. The decision should be driven by the cost and security status of the data – low grade data could go offshore to a cloud provider offering limited liability or service levels, sensitive personal data needs enhanced contractual protections.

Stuart Baikie, Managing Director of Cheltenham-based business telecommunications service providers, Total Ltd, adds: “Whoever is trying to access the hosted application or information must have sufficient data connectivity, regardless of whether they are a home, office or mobile worker.”

Infringement of Intellectual Property Rights

A former employee wants to use expertise gained while employed to set up a competing business? Where does that leave valuable intellectual property rights? Some technology businesses have been accused of trying to stifle competition and the disruption of fighting a court case may delay new products. Without adequate insurance defendants may not have a viable going concern, but steps can be taken to mitigate risks. These include being restrained whilst under an employment contract and respecting post-employment restraint of trade clauses, unless you obtain legal advice that these are unenforceable. Don't retain any of your employer’s IPR on departure. Return company laptops, discs or documents and obtain written acknowledgement.

The best defence is proof of independent creation. Take minutes of product development meetings, retain all design material and use a version control system for source code development.

If you’re considering co-operation with a commercial partner, sharing know-how or confidential information may be required and the receiving party may sign a non-disclosure agreement or NDA. However NDA’s may limit the freedom of the receiving party further than intended.

Contracts & Indemnities

Cheltenham-based Printwaste was recently invited to tender for a contract and the terms and conditions required them to “hold harmless and indemnify without limit [their Customer] against all and any claims anywhere in the world of liability due to breach of intellectual property rights, loss or damage of any kind whatsoever”. An extreme example, but commercial negotiations frequently require indemnities not necessarily covered by insurance. Solicitors and insurers recommend businesses should argue against such indemnities.

It's unlikely a claim under an indemnity will be fully covered by an insurance policy, unless it would have been covered in the absence of such an indemnity. However, claims based on indemnities are quite rare and claimants usually present loss in a way that triggers the insurance policy i.e. based on negligence etc.

I suggest any indemnity wording is deleted from the contract but confirm insurance is arranged for the reasonably foreseeable, fully mitigated and legally enforceable losses resulting from the insured’s legal liability, negligence or breach of contract. If the customer won’t accept this then clients should take legal advice and may have to accept a degree of commercial risk that goes with granting indemnities.

Printwaste Managing Director Don Robins, warns: “Small print is often ignored in the haste to gain business, particularly in this economic climate. It's essential for a business to understand, reduce and mitigate risks they may otherwise leave themselves open to within contractual indemnities. Commercial decisions are made easier if the risk is covered by an insurance policy.”

In an increasingly frenetic commercial environment, an insurance broker who understands business activities and exposures and how to mitigate them, is an essential part of every Cotswold businesses’ mix of expertise.