Liability insurance for a software company
A software company supplies many clients at once. One defect in a release therefore affects the whole client base, but not every consequential loss fits on the same policy.
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In brief
The AVB covers injury and property damage that you or your staff cause to third parties. For a software company that means, in concrete terms, implementation and support visits: a consultant who damages a server cabinet at a client, an engineer who damages a suspended ceiling while installing peripherals, or damage to the premises you rent yourself. For the structure, see hub page on public and employers' liability.
The typical software claim does not fit there. A release that processes orders twice, a migration in which historical data becomes unusable, an SLA that is not met: that is pure financial loss. For that, a professional indemnity insurance needed. Penalties flowing from a service level agreement also stay outside that cover, because they are obligations accepted by contract and not liability in law.
Two things that quickly go wrong as you grow. First the area of cover: if you sell through a marketplace or resellers to clients in the United States or Canada, that is excluded on many policies and has to be applied for separately. Second the series claims arrangement: where one fault in one version has consequences at dozens of clients, those claims usually count as a single loss under a single limit.
This page deals with one situation. The full overview is on Compare public and employers' liability insurance (AVB).
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Business liability insurance (AVB)
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We report the claim and monitor how it is handled. In urgent cases you can reach us on the emergency line.
What to look out for
Four points that make the difference at a growing software company.
One fault, many clients
A defect in a rolled-out version works through for everyone running that version. Insurers treat that as a series loss: all claims arising from the same cause fall under the sum insured per claim and under a single excess. Check that provision before you look at the limit.
Control of equipment and product liability
If you supply software that operates machines, locks, refrigeration or medical devices, a defect can lead to physical damage. The product liability under Article 6:185 of the Dutch Civil Codethen applies alongside the AVB, which is based on liability for a defective product without fault having to be proved. The costs of recalling or replacing your own product are excluded from it.
Staff in the office and at the client
Your duty of care under Article 7:658 of the Dutch Civil Code continues as soon as someone works for you at a client, including in a server room or a production environment. Subsection 4 of that article brings hired-in staff and trainees within that duty of care as well. Include them in the payroll you declare and record working instructions for work on site.
Data, access and fines
A break-in in your environment that spreads to client systems is not an AVB loss but a cyber incident; see cyber insurance for software companies. If your service is unavailable for a long period because of damage to your own assets, that is a case for business interruption insurance for IT companies. Administrative fines are not insurable on any policy.
What does your premium depend on?
- Annual turnover and client base: determines the size of a possible series loss
- Payroll: the basis for the employers' liability section
- Type of product: office software weighs differently from equipment control
- On-site implementation: your own people at clients increase the property damage risk
- Area of cover. North American customers are often excluded as standard
- Sum insured and excess: per claim, per series and per insurance year
Insurers weigh these details differently. That is where your saving is.
What is covered
| Situation | AVB | BAV |
|---|---|---|
| An implementation consultant drops a cup of coffee into the client's switch cabinet | Yes | No |
| An employee is injured in the cold aisle of a client's data centre | Yes | No |
| Your control software causes a cold store to fail and the stock inside spoils | Yes | No |
| A release processes orders twice and the client invoices incorrectly for months | No | Yes |
| An interface sends orders to the wrong customers and everything has to be recovered | No | Yes |
| Your service is down for three days because of an outage at your own hosting provider | No | No |
An outage of your own service is not liability but business interruption. That belongs on a third policy.
Frequently asked questions
This is what people ask us most.
Thirty clients claim after the same bug. Is that thirty times the limit?
Usually not. Claims arising from one cause are treated as a series loss and fall together under the amount per claim. A single excess then applies as well. Read the definition of a series loss in the conditions. For a software company that provision weighs more heavily than the level of the sum insured.
We have a client in the United States. Is that possible?
Only if the territorial scope allows it. Many Dutch policies exclude claims under American or Canadian law because of the different claims climate. Declare these clients when you apply. Article 7:928 of the Dutch Civil Code calls for an accurate picture of your activities and Article 7:930 DCC attaches consequences where that picture was wrong.
Does the AVB pay for recalling a defective version?
No. Costs of repairing, replacing or recalling your own product are excluded. That is performance of your obligation to supply. What is insured is only the damage the defect causes to others. Some insurers offer separate recall or mitigation cover. You have to apply for that expressly.
Is a dispute with a supplier or client covered?
No, liability insurance only responds where someone else holds you liable. For contract disputes, debt collection and employment matters you need legal expenses cover; see legal expenses cover for IT companies. Having both policies side by side prevents you carrying the costs of a long-running dispute yourself.
Every situation is different. For these situations we have a separate page.
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