Guest View: Insurance for the cloud

By Scott Godes and Idan Ivri

January 1, 2010 — (Page 1 of 3)
Software developers entering the field of cloud computing may need to reconsider their liability insurance coverage as they shepherd increasing amounts of user data.

Cloud computing is a loose term, but it generally refers to storing user data or applications on a remote server rather than on users’ own systems. A 2009 industry study by Coda Research Consultancy estimated that, by 2015, various forms of such software could represent 17% of all information technology spending worldwide.

Consumers benefit from cloud computing because it allows them to forego expensive, all-inclusive software suites and use the Web to selectively purchase the software features they actually use. Consumers can also run Web-based software on less-expensive systems because the processing largely occurs elsewhere.

But there are potential drawbacks as well. Cloud computing necessarily gives the user less control over his or her own data, meaning that the software developer or provider may be the only line of defense for the information. There are risks that developers and data/application hosts should keep in mind.

For example, if developers make privacy the top priority, cloud-computing developers may face those that say they should be liable for the bad behavior of unsavory customers seeking a dark place to host illegal data or viruses.

On the other hand, privacy standards that are too low could make developers liable for data theft against legitimate users, or for putting private data into the hands of advertisers. Developers will also have to handle disruptions or unavailability of data and services to end users.

Do developers have insurance that would cover such risks? Any combination of these situations may lead to consumer lawsuits against cloud-computing providers or developers. Developers, in turn, will likely turn to their liability insurers for support. For that reason, developers would do well to anticipate the arguments that liability insurers commonly make to deny coverage in software-related cases.

The first policy to look to in light of these risks is commercial general liability or a business owner’s policy. Those policies are commonly bought by companies of all sizes. The liability portion of those policies provides coverage to the company against lawsuits or claims filed by third parties.

Related Search Term(s): cloud computing

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