Does an IT contractor on B2B need liability insurance?

IT contractor’s liability risk

An IT specialist working as a contractor, especially under a B2B contract, is directly responsible for the quality of the services he provides. An error in the code, a security gap, improper system configuration or an incorrect architectural recommendation can lead to serious financial losses on the part of the client (e.g. data loss, system outages, repair costs). In such a situation, the customer may seek compensation from the contractor for the damages incurred. These claims can amount to significant sums, potentially exceeding the financial capacity of the contractor.

Is liability insurance compulsory?

In most cases, business liability insurance for IT contractors is not mandatory by law (unlike, for example, liability insurance for doctors or building architects). However, more and more often, having such a policy is a requirement imposed by clients or intermediary companies (body leasing suppliers) in cooperation agreements. Even if it is not a formal requirement, having liability insurance is highly recommended because of the potential risks involved.

Liability insurance coverage for IT

A third-party liability policy for an IT specialist should cover tort liability (for torts) and contractual liability (for failure to perform or improper performance of a contract). The scope of coverage may vary depending on the insurer’s offer and the option selected, but usually includes property damage (destruction of property) and personal injury (damage to health), as well as, which is particularly important in IT, the so-called pure financial loss (intangible damage, such as the client’s lost profits as a result of a system failure). It is worth noting the exclusions of liability in the general terms and conditions of insurance (T&C).

Sum assured

A key element of the policy is the sum assured – the maximum amount up to which the insurer is liable for damages during the insurance period. This sum should be adequate for the potential risk and the scale of the projects undertaken. Clients often specify in contracts the minimum required guarantee sum for contractors.

Benefits of having liability insurance

For an IT contractor, having liability insurance is first and foremost a financial safeguard against compensation claims that could threaten its financial stability. It is also an element that builds credibility and professionalism in the eyes of customers and business partners. Having a policy may even be a prerequisite for winning some contracts.

Summary

Although business liability insurance is usually not mandatory for IT contractors, having it is highly recommended as a form of protection against financial risks associated with potential errors and damages to clients. Increasingly, it is also a contractual requirement. When choosing a policy, it is important to pay attention to its coverage, sum assured and exclusions of liability to ensure adequate protection.