May 26 & 27
Products vs Services and what type
of insurance solution is required.
David Barrett – Simmons & Simmons
Stephen Wares – Hiscox
Lisa Hansford-Smith - MARSH
David Barrett
Simmons & Simmons
Marsh
2
How The Law & Contracting Practice Looks at
Technology & Services
Hardware – a sale of goods or tangible property; ie a product
– Standard Product Software – although technically a licence of an IPR
is treated as equivalent to a sale of goods or a product

Embedded software

Customisation of standard software; e.g. entering fields

Ancillary services
– Bespoke software – again technically involves a licence or transfer of
IPR is treated as provision of services
– ITO/BPO clearly provision of services

Contract can also include supply of product
–
Marsh
3
Liability
–
Terminology can change – underlying concepts very similar
throughout Europe
–
US law and practice can be surprisingly different
–
General standard of liability for professional services is higher than
for products or general services
–
Contract generally determinant of risk allocation between parties
Marsh
4
Legal and contracting practice – product model
–
–
–
–
–
–
Historic bargaining power was
with suppliers
No control over use of
technology
US orientated legal analysis –
supplier driven
Wish to price in and limit risk
Contracts shut down liability
by type and financial limit
Market acceptance
Marsh
Industry risk averse
– pressures for risk
transfer coming
from ITO and BPO
5
Legal and contracting practice – services model
–
More competed – T&Cs often
highly determinative of success
–
Fully negotiated/legal analysis
–
Customers transferring tasks and
processes – not buying
technology – want real risk
transfer
–
“Staking the farm” transactions
–
Increased acceptance of high
financial exposure, consequential
& economic loss etc..
–
Insurance cover a procurement &
contractual issue
Marsh
Industry risk averse
– pressures for risk
transfer coming
from ITO and BPO
6
Lisa Hansford-Smith
MARSH
Marsh
7
The Technology Risk Profile

Technology are providing a combination of the following
solutions:
– Products
– Software
– Services
– Consulting

Will a General Liability policy cover all of the above risks or is
stand alone Errors & Omissions policies required?
Marsh
8
General Liability Coverage

Purpose of General Liability - To provide protection for third party
damage or loss due to bodily injury or property damage
including resulting financial loss.

During soft market, the general liability expanded to provide pure
financial loss cover not linked to property damage/bodily injury.

This included coverage for areas such as intellectual property
risks and miscellaneous Errors & Omissions etc.
Marsh
9
The present situation

Pure financial loss not linked to Property Damage/Bodily injury is
difficult to obtain. If it is covered under the General Liability then there
is generally a sub-limit.

Many General Liability underwriters are looking more closely at what is
being covered under any pure financial loss extension. We have started
to see cases where:
– The General Liability underwriter is passing along the “services”
related risk to his Errors & Omissions underwriter.
– Not all of the software related risk is being covered under the
General liability and thus stand alone carve out cover needed to be
placed.
– Some Errors & Omissions cover is provided but only for core
services and not for Miscellaneous areas.

As companies move more towards the Errors & Omissions or “services”
related solutions, the need for stand alone Errors & Omissions cover
increases.
Marsh
10
What to consider regarding the General Liability

Ensure that your General Liability cover is providing full
protection for you products and services related risks.

Examine your limits under your General Liability for this type of
coverage – are your limits sufficient?

Do you also have an Errors & Omission policy in place? If so, are
there duplications of cover?
Marsh
11
Stephen Wares
Hiscox
Marsh
12
Why would Professional Indemnity/Errors &
Omissions cover be required?

Professional Indemnity covers services and General Liability
covers products.

General Liability Policies may not be designed to do what you
might ask them to do.

You purchase insurance expertise not just words on a page.
Marsh
13
So how does Professional Indemnity/E&O cover
address the issue?

Pure advisory services businesses.

IT companies providing product.
Marsh
14
A defined level of contract cover

Products do not conform with a written specification.

Products are materially defective.

Not complying with implied statutory terms.

Common law duty of care expressed in a contract. E.g.
reasonable care and skill.
Marsh
15
Why is cover so strictly defined and tightly
limited?

We will insure you against breach of contract.

A contractual duty of care of perfection.

A contractual guarantee that the product will deliver the client’s
business case.
Marsh
16
What now?

Do not ask an insurance product to be something that it was not
designed to be.

If you buy a PI policy, do not buy one designed for pure advisory
professions.

Get the right expertise.
Marsh
17
Conclusion

It is important to review the coverage that you have under your General
Liability and match this to the risks that your company faces. Is a stand
alone Errors & Omissions coverage now required?

If you have both a General Liability and Errors & Omission policy it is
important to ensure that these policies are matched and that there is:
– No duplication of cover
– No gaps in cover

It is important to have a clear understanding of what revenue is being
produced for products and services in order to provide accurate
information to the Errors & Omissions underwriters if stand alone cover
is being considered.
Marsh
18