Watch Your Step

Are you set to take the fall for an alleged screwup? You don't have to.

Ohms Law. Moores Law. Parkinsons Law. Theyre all critical to running a high-technology enterprise. But the most important law, by far, when it comes to ensuring the long-term success of a solutions provider, is Murphys Law. Assume, as a matter of course, that on any given customer engagement, everything that can go wrong, will go wrong.

Skeptical? Consider the classic case of McDonnell Douglas and its ill-fated systems integration pact with a now-defunct New Jersey wholesaler, Kane Carpet. It was just a routine $300,000 project, calling for the installation of an inventory control system. But the system broke down, Kanes frustrated customers defected and the 60-year-old carpet company went out of business in a matter of months. Kanes resulting tort claim, which alleged that the vendor fraudulently misrepresented the system, sought millions in collateral damages and dragged through the courts for years. In the end, only the lawyers won.

"Every time you take on a new project, you take on huge liabilities that go far beyond [what is covered] under the limited scope of your engagement contract," says Jack Wagner, managing director of the high-tech team at Summit Global Partners, a risk management consultancy and insurance underwriter.

Confronting Murphys Law requires a total, companywide risk management effort, encompassing everything from good hiring practices, to solid engagement methodologies, to airtight client contracts. But all those internal steps are still not enough to shield you from catastrophe. To truly guard against a fatal disaster, you must make one final, necessary trip—now dont all groan at once—to a reputable insurance firm.

The perils of e-biz contracting—where 75 percent of projects are said to fail, the threats to Internet security and privacy are growing, and the litigiousness of shareholders is increasing—are among the many reasons to dig down into your wallet for some extra protection.

Two general suggestions before you embark on the quest for the perfect policy: Dont buy generic insurance; it offers virtually no protection against the specific ills that can befall a high-tech company. And dont sign on any dotted lines without expert guidance from a lawyer and a high-tech specialty underwriter.

That said, heres a guide to the various types of high-tech insurance on the market: