INSURANCE CORNER

Article Loss Prevention by

What is insurance for loss of original documents? Do we need it?

Traditionally, Loss of Documents, was covered as a specific item under a material damage policy and met the cost of replacing the documents but not the costs of re-sourcing the information that was contained on them. Subsequently, Business Interruption policies were also extended and they would meet the re-sourcing costs. It is now possible to arrange the cover on a joint basis covering both replacement of materials as well as the re-sourcing costs within one overall sum insured.

There has also been a similar extension available under a computer insurance for material and data held thereon.

It addition to the material damage cover, it has been possible to extend Professional Indemnity policies to include Loss of Documents. This commenced as a “Legal Liability to Clients” protection only but gradually extended to include first party documents as well. However, following the enormous Loss of Documents claim in respect of the World Trade Centre the PI extensions are now generally reverting to their original, more limited cover.

The answer as to whether you need the cover is probably – yes – but it does depend very much on what documents you hold and where there are copies.

There is some debate over actual contract documents, where there have been cases of these being unenforceable unless they were the originals, despite the fact that they were computer generated. Although the Courts will generally now accept computer copies, this may not always be the case.

Away from contracts, the concern is regarding documentation and findings related to investigations along with, possibly, designs. Although the finished report may exist, with both Principal and Consultant, you may be called upon to justify your findings in the event of an incident occurring. This could be very costly – or impossible – if the original papers do not exist. The same situation could occur with designs if back-up copies of all relevant documents are not kept.

The key is to make sure that you have copies stored away from the premises and to buy the insurance cover against the worst case scenario.

I am a self employed consultant doing some work for a large firm. They have said that I am covered by their insurance. Can I rely on this?

The initial temptation is to say – “Yes” – on the basis that if the cover isn’t there then you are in a contractural situation, where you would be able to sue them in respect of any actual loss.

However, let’s look at the situation a bit more closely.

1. What insurances do they say that they are providing cover under for you? Any large business would have a wide portfolio of insurances, many of which would be irrelevant as far as you are concerned.

2. Have you received confirmation in writing? If so have they specified exactly what covers you would have benefit from? This is particularly important when you want to consider what liabilities you are still carrying yourself.

3. What are their indemnity limits? It would be easy to assume that just because they are “large” that they will have sufficient limits to cover any eventuality and that they must be bigger than any limits that you would purchase yourself. Are you happy with the limits?

4. How are you covered? Are you just noted as having an interest or are you a joint insured for the project? If it’s the first then there could still be a possibility of their insurers subrogating rights against you if you were negligent in respect of the incident concerned.

5. Are there any limiting terms and conditions? For example, is the policy subject to a large deductible, which will mean that you have to pay this sum off of any claim. Or is there a contribution clause, which says that if you have any insurance in your own name then it could be brought into contribution with the main policy in the event of an incident.

6. Should you be concerned regarding the security of the insurers? If you’ve not had any say in the insurance are you sure that the insurers concerned will still be there to meet any claim and will not have ceased trading.

In conclusion therefore it would be correct to say that there is no legal barrier to accepting the situation but beware of what you are receiving.