Technology – Understanding your contractual liability

The most common dispute we encounter when it comes to our fast growing technology clients, is an alleged breach of contract.

This breach could be down to an allegation of:

• Missed deadlines or milestones previously contractually agreed to
• The product/service which is being delivered has been deemed to have failed to meet the contractual specification
• A failure in the service levels promised

The majority of the incidents we see can usually be resolved by way of negotiation from the insurer’s legal experts. These generally relate to the payment of withheld fees to mitigate a larger claim. However, when ‘non-standard contractual terms’ are involved, costs and resources can quickly spiral.

Ideally, you want to trade under your own terms and conditions. You would have spent time and money creating them in order to cap the limit of your liabilities, reasonably restrict your indemnities from any potential exposures outside the scope of your negligence and to set out, in detail your business activities. However, in practice, we understand that this isn’t always possible.

There are ‘’Battle of forms’’ situations, whereby both parties wish to trade under their own terms and conditions and neither are willing to budge. This leaves the last set of T&C’s submitted prior to the work commencing usually being the ones that apply. Or more commonly in the technology industry, a David vs. Goliath-type scenario, whereby as a contractor or supplier you are pressured into signing up to a hiring client’s terms of business (usually a big global brand), in order to transact with them.

These terms are generally written generically, in order to cater for a wide array of activities being contracted out of the organisation and can often impose obligations outside of the norm. Such as, increasing your liabilities and indemnities, that expose you to consequential losses and liquidated damages/penalty charges.

This is why it is extremely important to ensure that your insurance arrangements specifically meet with your contractual requirements.

Contractual obligations that may have a direct impact on your insurance coverage include :

• The geographical limit and controlling law of the contract
• Requests to have additional named insureds
• A non-reciprocal hold harmless agreement in the other contracting parties favour
• A waiver of subrogation provision
• Liquidated damages/penalty charges

Here at Macbeth we offer insurance solutions which can provide coverage for contract certainty for all of the above scenarios, to act as the first response in defending a potential breach of contract allegation, covering the defence costs from the initial outlay and any damages if awarded in a lawsuit.