An IT company was engaged to install new software for a hospital, advising them that it would not clash with their systems.  The installation failed which caused a system crash rendering the storage server unavailable.

This meant hospital staff could not access online patient records, x-ray and scan imaging and other information. When a recovery was attempted it became apparent that all data on the server had been corrupted and was lost. A restoration from the latest back up tapes had to be commenced.

The IT company was required to engage external resources to assist with the restoration and fly in resources at a cost of $100,000. The server was finally restored after two and half days during which time hospital staff had to rely on limited manual records and procedures potentially putting people’s medical treatment at risk.

Importantly in this situation, the insurer could have view the claim as:

• A Product Liability Claim: The product (software) damaged a third-party system.
• A Service Liability Claim: The service (installing software) damaged a third-party system.
• A Professional Indemnity / Errors & Omissions Claim: A third-party suffered a financial loss (system repair expenses) as a result of incorrect advice.

As IT company had insured for all three scenarios under one policy, it did not matter which way the insurer viewed the claim.

If they had insured for these scenarios under different policies, then they were open to risk. If the indemnity insurer declined the claim as a liability issue, and the liability insurer declined the claim as an indemnity issue, they may have been left out-of-pocket.