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How You Can Get Sued after a Data Breach

How You Can Get Sued after a Data Breach

Tuesday, January 13, 2015/Categories: Cyber Liability Insurance, Errors and Omissions / Professional Liability Insurance, Contractor Insurance, IT Consulting, Cyber Security, Data Breach

Whether it's for a data breach, cyber attack, or data disclosure caused by software malfunction, an IT consultant can be sued in a cyber liability lawsuit.

As a tech professional, you're used to the ins and outs of the tech world, but might be a little confused by legal jargon like "cyber liability." That's normal. In reality, it is somewhat confusing what you can be sued for and why you're liable for a client's data breach.

In this blog, we'll examine these issues more closely and answer some basic questions about IT liability and your Professional Liability Insurance, including:

  1. Why are IT consultants sued for data breaches?
  2. Can I be sued for a client's mistakes?
  3. What IT insurance covers data breaches?
  4. How much does insurance cost for my IT consulting business?

Why Are IT Consultants Sued for Data Breaches?

The reason you can be sued for data breaches is simple: data breaches are expensive. If a client's data is stolen by a criminal or accidentally disclosed online, the client will probably have to pay thousands in expenses.

The NSBA estimates that cyber attacks costs small businesses around $9,000 on average, but costs can be much higher than that. A data breach could easily reach five-figures in costs if you take into consideration…

  • Ongoing legal costs.
  • IT repairs.
  • Damages to a business's reputation.

Because of these high costs, clients will look to recover their data breach expenses and often sue the IT contractor who installed or maintained the technology that was at fault in the breach.

Can I Be Sued for a Client's Mistakes?

Say that a breach was facilitated by a client's poor security policy. An employee haphazardly clicked a link they shouldn't have and downloaded malware onto the network. Could you be sued in this circumstance? As a matter of fact, yes.

IT liability is extremely complicated. You can be sued for data breaches when you're not directly responsible for the attack. In this instance, clients could allege that your security and network software was faulty because it didn't flag the malware.

Here's another example. Say you recommend that a client use a third-party web app to handle their sales data. A data breach at the web app exposes your client's data. In this situation, you could be sued merely for recommending a service that turned out not to be secure.

What IT Insurance Covers Data Breaches?

There are two insurance policies that can cover data breach costs:

You might be thinking, "Data Breach Insurance — that sounds like the coverage I need," but this coverage is usually better suited for your clients.

Data Breach Insurance (aka Cyber Liability Insurance) covers data breach costs when a breach occurs on the policy holder's network and their data is stolen. Your IT business probably doesn't store much private data on its own networks (unless you run a web hosting or data analytics firm). But your clients probably have thousands of customer, employee, financial, and medical records on their network. Recommend that they invest in Data Breach Insurance.

The second coverage we list above, Professional Liability Insurance / Errors and Omissions Insurance, is usually what IT consultants need to cover their data breach liabilities.

Think of Errors and Omissions like your Malpractice Insurance. If a patient sues a doctor, malpractice insurance covers the lawsuit. When a client sues you for a data breach or other problem with your IT, E&O Insurance can cover your legal expenses.

Ideally, a cyber risk management plan would involve both of these policies. Your clients would have Cyber Liability Insurance and you'd have Professional Liability coverage.

How Much Does Insurance Cost for My IT Consulting Business?

Insurance premiums vary from one IT contractor to the next. Let's assume you're an independent contractor who does less than $150,000 in annual revenue. Your Professional Liability Insurance (with coverage for client data breach lawsuits) typically costs $1,000 to $1,500 in annual premiums.

If you'd like more information about the cost of IT insurance, use our online insurance application and receive free quotes tailored for your business.

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