Cutting Risk on the Cutting Edge:
Lawsuit Prevention Policies for IT Businesses

IT business insurance can pay for lawsuits, but it's always better to prevent a lawsuit from happening if you can. How can IT contractors prevent lawsuits and the incidents that lead to lawsuits? That's the million-dollar question. Literally.

Preventing a lawsuit is easier said than done. There isn't only one way to do it. Rather, you need to practice IT risk management at every level of your business. To prevent IT lawsuits, you might need to reexamine your basic business procedures and adopt best practices for…

  • Client communication
  • Employee communication.
  • Copyright training.
  • Contract negotiation.
  • Complaint resolution procedures.
  • Client acceptance / signoff policies.

You probably do some of these things already — and do them well. But let's look at how you can use these techniques to prevent IT lawsuits.

6 Ways to Prevent Client Lawsuits

At insureon, we've insured tens of thousands of IT companies. Most of our customers are folks who've been working in IT for a while, but only recently started their own businesses. That's common for IT professionals.

Unfortunately, this means that many IT businesses owners are still relatively new to running a business. Make no mistake: running a small business is hard work. There's a thousand things to do every day, and you begin to realize that big companies have ways of doing things that work for them but aren't plausible for a small business on a budget.

The trick is to find policies and procedures that minimize your risk, but don't take up too much time or money. These IT risk management procedures protect your IT business and are suitable for smaller operations and independent contractors:

1.Client communications. Develop a procedure for how you talk to clients. The majority of claims filed against IT businesses are for client disputes. Communicating clearly about your work, making sure clients know exactly what service you'll deliver, and maintaining good relationships can minimize this risk. (See "The Technology X Factor: Client Communication" for more on why client education is important and how your can improve it.)

2.Employee communications. Internal communications are just as important as external ones. By having a clear way to communicate project goals, policies, and requirements to employees (or subcontractors), you make sure work gets done right the first time.

3.Copyright training. Our research shows that 40 percent of IT companies don't have a number of basic copyright procedures in place. To reduce the risk of copyright lawsuits, you can obtain copyright releases, ask clients to sign off on marketing / advertising campaigns, and educate your employees about copyright risks. (Coverage note: copyright lawsuits are covered under General Liability Insurance.)

4.Complaint resolution procedures. How do you handle client complaints? Having standard procedures can help you make sure nothing gets lost in the shuffle and your clients are taken care of when they have a problem.

5.Client acceptance / signoff policies. It's a good idea to have clients sign off on your work while it's still in progress. Have periodic check-ins or milestones they have to approve. By documenting their approval, you can prevent many lawsuits that could arise out of miscommunications or unrealistic expectations.

6.Contract negotiations. While lawyers are costly, they can be a smart hire if you're about to sign a long-term contract and want to make sure the deal is fair. If you're looking to save money, you can use customizable online contract templates (ContractEdge is one popular resource for IT contracts). If a larger company hires you, you might not have much leverage during negotiation. Nonetheless, read over the contract carefully, and make sure it's suitable.

Adopting these recommendations can help prevent lawsuits, but you can't eliminate risk completely. Even the most careful IT companies can be sued. That's why you need a combination of risk management strategies and IT business insurance to cover your risk.

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