How many consultants carry liability insurance?

[viSci]

I have ventured into the area of hydraulic controls development working with heavy machinery and am starting to think that I will need some sort of liability insurance in the event my software should damage equipment or cause injury. Is it common for consultants to carry this type of insurance, ever had to use it? How much coverage is needed? (I usually hear that 1 million is typical). Any recommendations on companies that provide these services?

[dannyt]

Hi,

I am no longer work as a software consultant, but I did for about 5 or 6 years and in the UK I found it very common that companies insisted that I had some form of Professional Indemnity & also Personal Indemnity policy. Having such policy's also help with the "proof" that I was not a "disguised employee" to the tax office (something UK consultants will know about).

I would have thought that in the US where litigation seem much more rife one would take out such policy's by default and only not have them if there was a very good reason not to.

Danny

[Aristos Queue]

IANAL.

My understanding, from a long ago college course, is that software authors in the USA have a huge amount of indemnity under the law automatically. You should investigate that before you invest in insurance. It's one of those weird areas where the usual "you can be sued for anything" attitude of the USA doesn't apply. I've been told that some software engineer long ago (40+ years) got Congress to believe that software writing was such a crap shoot that it really couldn't be expected to be bug free, so anyone using the computer should automatically assume that there may be problems and respond accordingly. You'll note there's never been a class action suit against Microsoft for a security hole in Windows, nor a loss of business suit against Oracle for a database corruption bug.

Now, if you start mucking about with hardware, that's when things get a bit different, but there's still some protection there.

[Mark Smith]

Many of the contracts we see require our company to carry liability insurance or we won't even be considered. And we just do software consulting. And we're in the USA. So that means we do it or we don't work.

It is an interesting argument that AQ makes that it doesn't seem anyone sues MS for the BSOD. But, IIRC, there were no end of lawsuits against Toyota when their software/firmware was suspected (wrongly, it seems) of causing unintended acceleration. And I can't imagine Boeing wouldn't be liable if a 737 took a nosedive when the flight controller failed. At any rate, this is why I write LV - it's infinitely more understandable (and logical) than the law.

Mark

[jdunham]

I am not a lawyer either, but one essential protection is that any software you release should be marked "AS-IS" and that there is no warranty on operation or on "fitness for purpose" and you want to make sure you assume no liability consequential damages. You should have a clause that basically says "we don't accept liability for anything, but in any case, our liability is also limited to the price of the software. Of course all of that stuff is fodder for the courts no matter what you say in your contracts and licenses, but if that's on your software and on your terms and conditions, then you'd hope that was some protection.

If you search those terms and the agreements of other software products you own, you should find some acceptable boilerplate language. My understanding is also that when you see stuff in capital letters, you have to keep it that way, probably because some court somewhere decided those clauses weren't obvious enough and somebody lost a case about it. There are other important clauses that seem irrelevant, like severability, so don't cut anything out without using a lawyer, which you should do anyway.

The importance of those clauses is that you have to make it the customer's responsibility, such that when they accept the software and make the payment, that means they are satisfied with the software's functionality and fitness for purpose. If the machine ends up not working or hurting somebody it should have been agreed upon upfront that this was their responsibility to spec the project to consider all the safety-related requirements and to test that those worked after taking delivery and before deployment.

Of course there is always room for disagreement and lawsuits so insurance is a good idea, but I've done projects without any. I don't think this ends up in court too much at the typical labview scale, because the customers (i.e. a factory) have plenty of insurance. Their insurance carrier is probably not going to bother coming after you even if the defect can be tied to your work. The aforementioned examples of Toyota or Microsoft are consumer applications, and the class-action lawsuit is its own beast, but you're not likely to run into that until you have millions of customers.

[Tim_S]

It seems like everyone is commenting on software. I believe the rules would change dramatically if you ever specify hardware to be used.

[Black Pearl]

Just some unqualified basics from my experience. I care about EE safety in germany (little experience from my side and tech not legal dep), so might be different with american steam engines . But statistically touching 230VAC is giving you a chance of about 2% to get killed.

For the legal issues, you have 'employers responsibility' for anything that happens (in germany: BGV A1 and BGV A3 for EE). So for me, if someone is killed by bad electrics I produce, my boss (= employer) will hang. If he has no idea about EE, he can delegate this responsibility to me (in written form -> vEFK=responsible electrical skilled person?). Note: not written -> no proof in court! And as an vEFK you should get insurance like management (you actually are in this position -> you are the leader of/responsible for all E-staff). But this actually is designed for big companies. So normally (I don't think most do, which is actually illegal) you outsource this to an electrician who takes care about DIN VDE 701-702/BGV A3 regulations.

A second legal aspect is, that you get exemtions for small companies, e.g. a risk analysis of a work place is necessary for companies with more than 10 employees.

And finally, I can mix everything to make it more complicated. In europa, you have two different norms covering machine safety, one electrical and one mechanical. Doesn't work in practice, because you need electrical signals to transmit the emergency off to the motor. So you need to conform to one of these, not both.

All confused? Well, I read 4 books about the tech stuff for safety, and above is a short summary.

In germany, we have an institution called 'Berufsgenossenschaft'=BGV (yep, that's equal to the BGV from BGV A3), translator gives me 'employer's liability insurance coverage'. I think any company is required to join one of them. And they need to pay for any accident I get at work -> they don't want this accident happen -> ask them about necessary safety requirements. A lot of safety concepts I learned was from their publications. I don't know if you can go for a similar institution, otherwise I'd just get a lawyer specialized into this -> half an hour isn't much money, and he has no interested in selling you much insurance!

Felix

[dannyt]

Again most of the talk here has been about "Professional Indemnity" both hardware & software, but the other type of insurance some Clients insisted I had was "Personnel Indemnity", this is touched on in Felix post the sort of Health & Safety at work type stuff.

If I am on a clients site representing myself as my own Company (i.e. a typical UK contractor) I am not covered by my Clients Liability Insurance, so for example I my just be sitting at a desk writing code I leave my bag on the floor and somebody trips over the bags strap I (or my company) can be liable.

[ASTDan]

I just went though this for my business. I am based in the USA, and I am a small LabVIEW consultant.

There are 3 types of insurance you generally need for a business. General Liability, Workman's Compensation and Professional Liability (aka Errors and Omissions).

General Liability protects you if someone on your premises falls and wants to sue you. Mine has an additional rider called Baily's insurance. This covers equipment not owned by you. If you drop it, and break it, your Baily's will cover it. This is not expensive insurance and is great value for the money. There is also some product and data loss protection in my general liability policy.

Workmans Compensation is if you get you hand chopped off at your customers site or someone working for you. It will pay for your (and employee) medical costs, and protect you from some liability. This is generally what customers want to see you have. Having this insurance protects the customer from getting sued by you if there is an accident (that is why they want to see it). This insurance is based on your payroll. It is not that expensive because computer programmers are at a low risk to get injured. (I got into the accountants category). In the US Workman's Compensation is by state. Michigan workman's comp laws are different than Ohio. If you have employees you MUST have workman's comp

Professional Liability (aka Errors and omissions) protects you if you mess up and somebody wants to sue you. The thing you really want is the insurance company to pay for the lawyer. Legal fees will KILL you. I am more concerned about the cost of litigation than the amount somebody would potentially sue me for. Professional Liability insurance is expensive, and most folks in the insurance industry don't understand what we do. I went through IEEE. They spent the time to find an insurance company and explain the risks of our job. That means better and cheaper coverage for us. IMHO it is very rare to get sued. The costs of litigation for both sides usually causes cooler heads to prevail. However it only takes 1 a**hole...

Reason does not exist in a legal situation. The judges, jurys, and lawyers have no clue on technical matters, and don't care. You could be totally in the right and be liable. Having a big bad insurance company with an army of lawyers on staff who don't want to pay claims is what you are paying for.

Using a building contractor analogy, having LabVIEW certification and insurance you are now "licensed and insured". IMHO this is a very marketable thing.

Edited August 18, 2011 by ASTDan