Legal expenses insurance (rechtsbijstandverzekering) for an IT company
For an IT business the dispute is rarely about broken hardware. It is about what was promised, when something is finished, and who owns the code in the end.
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In brief
In legal terms an IT assignment is usually a contract for services within the meaning of Article 7:400 of the Dutch Civil Code, under which Article 7:401 of the Dutch Civil Code requires you to exercise the care of a good contractor. That is a duty to make best efforts, not a guarantee of a working system, but the line blurs as soon as you work with a fixed price and a delivery date. Almost every dispute then starts with the same question: was an acceptance protocol agreed, with test criteria and a period within which the customer has to respond? Without that document a project stays open indefinitely and the lawyer has nothing to build on.
The second point is the most painful for IT businesses: intellectual property is outside the cover on almost every legal expenses policy. Disputes about copyright in source code, trade mark infringement, patents, database rights and domain names are excluded, and that is exactly where the value of a software business lies. The practical consequence: settle ownership, licensing, reuse of components and an escrow arrangement in writing in the contract, because a policy will not run that argument for you. Background on the liability side is at liability cover for a software business.
The third point is staff and hiring in. Secondment, non-competition and client-restraint clauses, a customer taking on a developer and discussions about the working relationship with self-employed people hired in produce most of the files. There is also an administrative line: as a processor you can become the subject of an investigation by the regulator after a data breach. The fine is never covered; the technical and communication costs of the incident belong on a cyber insurance. Sector-wide information can be found at insurance for the IT sector.
This page deals with one situation. The full overview is on Compare personal legal expenses insurance (rechtsbijstandverzekering).
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What to look out for
Four subjects that decide whether a case is viable for an IT business.
When has it been delivered?
Without acceptance criteria and a period for responding, a customer can keep saying it is not finished. Record what is tested, who tests, within how many days a response is due and what happens if that period passes. Work with a written change procedure for extra functionality; undocumented additions are the main cause of an unpaid final invoice.
Intellectual property falls outside the policy
A claim about a former customer's use of your code, about a brand name or about an open source licence is excluded, even if the amount is large. The same usually applies to domain name disputes. Make sure the contract sets out which rights pass on payment, which stay with you and what the customer may do with the source code if the arrangement ends.
Subscriptions, termination and debt collection
With recurring services, discussion arises about automatic renewal, notice periods and whether a customer can stop mid-term. An undisputed invoice can be pursued through the debt collection module; as soon as the customer raises a substantive defence, it moves to contracts. Insurers apply a minimum interest below which a case is not taken on.
Supervision, the processor role and administrative law
If you manage data for customers, you are a processor and can be held to the agreements in the processing agreement. If an investigation by the regulator follows from that, it is administrative law and a separate module. Administrative fines and penalty payments are never insured, even if the proceedings afterwards end in your favour.
What does your premium depend on?
- Annual turnover: most policies work with turnover bands
- Nature of the activities: your own product, bespoke development, management or secondment
- Number of employees: and the proportion working at customers' sites
- Client base: consumers, SMEs or large clients with their own purchasing conditions
- Area of cover: customers outside the Netherlands limit whether a case can be handled
- Modules chosen: contracts, employment, debt collection, administrative law
Insurers weigh these details differently. That is where your saving is.
What the lawyer handles
| Situation | Basic | Extended |
|---|---|---|
| A hosting provider takes your customer environment offline after a payment dispute | Yes | Yes |
| A supplier raises licence costs sharply halfway through the contract period | Yes | Yes |
| A former employee sets up on his own and approaches your regular customers | Yes | Yes |
| A local authority withdraws a tender it had awarded to you | No | Provided that |
| A customer in Germany leaves your invoices unpaid and would rather litigate there | No | Provided that |
| Ransomware brings your environment down and customers claim compensation for their downtime | No | No |
The last row belongs on cyber and liability cover. This policy runs the dispute and does not pay for the loss.
Frequently asked questions
This is what people ask us most.
My customer is not paying because the software does not do what he expected. Is that debt collection?
No, that is a disputed claim and therefore a contract dispute. The lawyer first assesses what was agreed about functionality, whether there are acceptance criteria and whether the complaint was made in good time. If you have a signed acceptance document and a documented change procedure, the case has good prospects. Without them the outcome is almost always a settlement based on what is reasonable.
Can I use this policy to act against infringement of my software?
As a rule no. Disputes about intellectual property rights are a standard exclusion on business legal expenses policies, whether they concern copyright in code, a trade mark or a patent. That means you fund those proceedings yourself. For a software business that is a reason to settle the contractual side carefully and to build the cost of enforcement into your pricing.
A customer takes on my seconded developer. What can I do?
That depends on the client-restraint or hiring clause in the framework agreement and on the non-competition clause in the contract of employment. The lawyer can assess both and approach the customer or the employee. The dispute with the employee falls under employment law, the one with the customer under contracts. Clauses drafted too widely often do not hold up in court.
The regulator is investigating us after a data breach. Are the costs covered?
The legal assistance in the investigation falls under administrative law, provided that module is included. A fine or penalty payment is excluded. The costs of forensic investigation, recovery, notification and communication belong on a cyber policy, and liability towards your client runs through the liability cover. Report the incident in good time; Article 7:941 of the Dutch Civil Code requires you to do so as soon as you are aware of it.
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