IT contractor guide to Professional Indemnity Insurance

We insure all forms of IT professional, from sole traders and short-term contractors to large outsourcing firms who will take on companies’ entire technology needs, writes Chris Charlton at Hiscox.

But regardless of the size of our client, IT claims will often have similar background facts or are caused by common issues. 

IT disputes, whether you are a large company or a small contractor, can be costly and time-consuming, not to mention distressing and worrying for you and your business. It’s not unheard of for some of these claims to take time to resolve – both from a technical and legal point of view. It’s why having the right insurance policy can help take away some of this stress and let you focus on the day-to-day running of your business.

To know what policy is right for you, it helps to have an idea of what can go wrong. Each business is different but, broadly, the majority of disputes we see fall into the following areas:

A breakdown in communication between the parties

Whether the project is small or large, often parties are so keen to get the project started or to get the individual contractor into role that not enough time is spent identifying and planning what is required and what the end result should be. 

Projects take shape after a series of meetings in which the client explains what it wants. Ideally, these meetings would result in the IT consultant developing a very detailed specification for the job, which the customer agrees. But that may not always be possible.

Perhaps the IT firm is brought in after the spec has been developed, or because the objective isn’t well defined (“we want our website to look good!”). But the contractor can be left exposed if a dispute arises with the customer.

What was actually and specifically agreed

It’s relatively common for a customer to change their mind about what it wants after it sees the first version. Often a project can go through a series of amendments, to the extent where the finished article bears little resemblance to the first draft.

The client might still not like what the consultant has delivered - or it might be ecstatic, but the project ends up being more expensive than was originally agreed. A stalemate ensues: the contractor wants to be paid, the client is unhappy but often the only record of the project changes is in a muddled trail of emails.

A change of financial situation

Many IT contractors work for firms on a fixed-term contract, often in order to plug a gap in their in-house teams. But if the company finds a permanent replacement quickly, then we’ve seen some unfortunate cases where companies instead of honouring their payment obligations will look for reasons not to pay the remainder of the contractor’s agreement. Instead, they try to claim the contractor has breached the terms of their contract and caused damage.

In other cases, a company may have invested heavily in new IT solutions, which takes up both time and money. If, further down the line, the company’s fortunes change and they decide to scale back on their investment, it could lead to them looking at the project more closely, picking fault with the work they’ve procured or even look for a reason to cancel the project entirely.

IP infringements

Intellectual property (IP) infringement can be a confusing issue, particularly for individual IT contractors, but establishing whether it is the contractor or client who owns the IP at the start of a project may often head off ownership problems further down the line.

One type of claim we’ve seen in the past is from people who’ve inadvertently breached a previous client’s copyright. For example, the contractor completes a project for Client A and starts working for Client B. Believing they’re free to use elements of the end project for Client A, they start using this in their work for Client B.

However, the IP in the original project is likely to be the property of Client A and if the contractor uses this in subsequent projects for different clients then Client A would be within their rights to bring a claim against the contractor. In the most extreme cases, we’ve seen injunctions sought against the contractor, followed by legal proceedings. It’s always worth checking where copyright resides, as it can avoid an expensive and stressful claim.

Getting protected

A professional indemnity policy can provide you with the peace of mind that a messy dispute with a dissatisfied client won’t threaten your livelihood. For example, we offer a wide coverage for IT contractors, including for breach of contract and IP infringement claims.

Dealing with a claim on your own can be incredibly stressful and time-consuming. It can easily take over your life. It’s easy to become swamped, to the extent that it can make it impossible to do your job. That’s why having an experienced team of lawyers to fight your cause, provided by an insurer, can be so valuable. To get a quote visit www.hiscox.co.uk/ContractorUK.

Top tips for avoiding disputes

To help avoid a dispute with a client, follow our top tips:

• Have a clear contract, including the project’s scope and function, deadline and cost.
• If the client wants a major alteration in the project (particularly if it involves extra work) then it’s good practice for both sides to agree a change in the original terms of the contract. You might be reluctant, as you worry it might prompt a disagreement with your client, but it could save you a lot of hassle in the long run.
• For fixed-term freelance contracts, set out at the very start whether it is you or your client who will own the intellectual property contained in the product you are creating.