InsURANCE REQUIREMENTS FOR Managed Services Providers
As a managed service provider (MSP), you naturally face significant risk, which makes the insurance component of your managed service agreement (MSA) critical.
Too often, MSP contracts are weak – or completely silent – on the matter of insurance, which can leave you unnecessarily vulnerable. If you’re an MSP with contract concerns, connect with an established MSP attorney today.
Insurance Provisions to Consider Including in Your MSA
If you’re an MSP, your managed service agreements are your bread and butter, but your MSP insurance requirements may not be receiving the attention they deserve. Take the time necessary to ensure that your MSAs carefully address insurance provisions that are specific to your needs.
Commercial General Liability
Commercial general liability insurance (commonly called GL) is foundational to all businesses. GL protects you against general claims born of accidents and injuries that are related to negligence. Your GL coverage can help shield you from costs related to all of the following:
- Property damage
- Medical care
- Legal fees
- Legal judgments
- Claims based on libel and slander
General liability (GL) insurance is a standard MSP insurance requirement that is important to you and your business customers, and while it provides broad coverage, it’s unlikely to do the trick in every situation.
Professional Liability Insurance, Errors and Omissions
Errors and Omissions Insurance – known as E&O – is intended to cover you in the event you fail to perform in accordance with the contractual obligations of your MSA. This coverage can help offset the costs associated with causing a customer’s loss, which can benefit both you and your customers.
Whenever a vehicle is involved in the provision of any service, accidents are a possibility, and automobile liability insurance is a necessity. Even if your MSP owns no vehicles, if hired cars or cars owned by your service providers are involved, the matter of insurance should be addressed. Again, this is important for both you, as the MSP, and for your business customers.
If you have employees, you generally need to purchase workers’ compensation insurance, and even if you aren’t required to do so, it remains in your best interest to carry adequate coverage. Workers’ compensation covers job-related illnesses and injuries, and if your service providers work onsite at your business customers’ locations, including it in your MSA is an excellent idea.
Employment Practices Liability Insurance
Employment practices liability insurance (commonly referred to as EPLI) is intended to cover those work-based claims that are not covered by workers’ comp or by your GL policy, including wrongful termination and harassment charges. This not only helps protect you in such instances but also demonstrates to your business customers that such claims will not leave them vulnerable to breaks in service (while you cope with the expensive and time-consuming aftermath of an uninsured claim).
Umbrella Liability Insurance
Having the appropriate kinds of coverage in the appropriate limit ranges is critical, but it doesn’t mean you are fully covered for every eventuality, and this is where an umbrella policy comes into play. In the event that a loss exceeding the limits of your other policies occurs, your umbrella policy will kick in. The three primary reasons for maintaining an umbrella policy include:
- Because your professional liability insurance can quickly be depleted by legal defense fees
- Because you have significant business assets to protect
- Because the nature of the goods or services you provide leaves you vulnerable to legal claims
Without a solid umbrella policy in place, you could be looking at financial ruin If a claim against you leaves your regular coverage exhausted.
If you’re so well established that you insure yourself in relation to the risks outlined herein, you will need to address the matter for your business customers in your MSA.
Cyber Liability Insurance
Cyber liability coverage naturally applies to incidents related to cyber breaches, and it is a critical component of every MSP’s insurance arsenal. Cyber liability insurance includes both first-party liability coverage and third-party liability coverage. First party liability coverage applies to the direct costs you encounter in relation to cyber breaches, including those for:
- Notifying clients affected by the breach
- Purchasing credit monitoring services for clients affected by the breach
- Launching PR campaigns to help restore the reputations of affected companies
- Compensating affected companies for related income losses
- Paying off cyber-extortionists who hold data hostage or threaten attacks
Third-party liability coverage, on the other hand, covers you – as the MSP responsible for the breach – and your independent contractors (if they shoulder or share responsibility). Somewhere in your MSP insurance requirements, all of the following should be addressed:
- Network Security and Privacy Liability Coverage – This coverage helps protect you in the event that you fail to protect a customer’s personally identifiable information (such as credit card numbers, SSNs, medical information, passwords, and more) from theft, unauthorized access, viruses, and/or denial-of-service attacks.
- Media Communications Liability/Reputation or Brand Protection – This area of coverage helps to protect you from charges based on defamation, libel, or slander; invasion or violation of privacy; plagiarism or piracy; copyright or trademark infringement; and wrongful media communication acts, which can harm business customers involved in media communications (whether print, digital, or broadcast form).
- Data Breach Protection – Data breaches happen, and you should have comprehensive insurance in place to help protect you from them – in every iteration – including everything from being targeted by hackers to malware attacks, malfunctions, insider data breaches, data theft by employees, ransomware, and employee errors.
- Data Loss/Interruption of Computer Operations Protection – This coverage is intended for data losses that are related to inadequate backup or to insured losses, such as disasters or a virus that destroys the entire computer system. Additionally, data loss coverage can reimburse income losses that you or your business customer experience in tandem with data loss.
- Regulatory Response Coverage – Your regulatory response coverage amounts to protection from fines and defense costs that flow from proceedings brought by regulatory agencies (whether against your MSP or against someone performing a regulatory function within your business customer’s firm).
- Regulatory Defense/Penalty Protection – This coverage relates to defense expenses and/or regulatory fines and penalties imposed by regulatory agencies in connection with data breaches.
- Systems Damage Protection – This coverage relates to computer systems that are damaged during the retrieval, restoration, or replacement of computer programs or other data media.
- Threats or Extortion Protection – This coverage helps protect you in the event you experience threats or extortion from a hacker or virus within your computer system.
Discuss Your MSP Insurance Requirements with an Experienced MSP Attorney Today
As an MSP, the insurance requirements you face are significant – and important. When it comes to insurance – especially in the tech space – the adage better safe than sorry remains spot on.
At Scott & Scott LLP, our experienced MSP attorneys appreciate how daunting curating comprehensive insurance can be, and we’re committed to helping you find the peace of mind and confidence that comes from knowing you’re well covered – come what may. Now is an excellent time to address the matter, so please don’t hesitate to contact us for a free case evaluation today.