Loss of Electronic Data

It’s not covered under a General Liability policy

Standard business General Liability policies don’t adequately cover the liability risk of property damage to electronic data.

Service or contracting businesses can cause property damage resulting in loss of or damage to a third party’s digital data that is housed on their computer system. This exposure is not limited to IT firms.

Understanding the terminology

The term property damage used on standard General Liability forms is defined as

  • physical injury to tangible property including loss of use thereof; and
  • loss of use of tangible property that is not injured.

According to these definitions, electronic data is not tangible property.

Electronic data is information, facts, or programs stored as or on, created or used on, or transmitted to or from computer software, hard discs, CD-ROMS, tapes, drives, cells, data processing devices, or any other media used with electronically controlled equipment.

What you can do

This problem can be resolved by the addition of various endorsements to cover property damage to electronic data. The cost is usually minimal.

However, some General Liability carriers that cater to IT firms will not add the endorsements. As a result, IT firms may need to verify that their Professional Liability (Errors & Omissions Liability) policy will cover this exposure. The key is to locate the definition of “tangible property” and find out if electronic data is included.

 

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