Nonprofit Insurance Checklist: Computers and Data

Many of our clients understand general liability and property insurance. They get the broad brushstrokes:

  • Property insurance covers the stuff we own if there’s a fire, windstorm, theft, a suburban deer loose in our warehouse, etc.
  • General liability provides us defense and claims payment funds if we are accused of or found negligent for bodily injury or property damage to someone else.

As an insurance man, my shorthand in these bullet points makes me cringe because there are always caveats and ‘except fors’ and a few ‘it depends…’.  But in general, those two thoughts capture what those policies do.

Nonprofit Insurance Computer and Data Insurance

Nonprofit Insurance Checklist: Computers and Data

Are Computers and Data Just Types of Property?

Sometimes yes, sometimes no. It’s the ‘no’ that’ll bite you in the tush if you’re not careful.

There are certain exposures that require some special consideration. And given that this blog is about helping nonprofits protect their visions, I should definitely point out some of these special exposures.

Computers and Data are two categories of ‘things’ that need special consideration. They seem on the surface to be just different types of property, but there are some things that can happen to data and computers that can’t happen to your conference room furniture.

Computers

Computer equipment is defined, normally, as computers, peripherals, and other similar items that require the use of some sort of processing chip or have the capacity to store data. And typically, they require some sort of electrical power to make them do work.

  • Desktop computers
  • Laptop computers
  • Printers
  • Copiers
  • Servers
  • Scanners
  • Phone systems
  • External hard drives
  • And other items I’m sure I’m not thinking of at the moment.

These items require a policy that goes beyond the normal property policy.

While a property policy will cover them for the normal fire, windstorm, theft, etc., the same policy has some limitations regarding the unique types of losses that can render a computer useless.

Important Property Exclusions

Two important exclusions to the property policy that are noteworthy:

  • Utility services: “loss or damage caused by a surge of power is also excluded”
  • Artificially generated electrical, magnetic, or electromagnetic energy that damages a wide variety of devices (computers and related would be included here as ‘devices’)

Basically, loss to your computer systems due to any sort of power surge that fries the equipment would be excluded on the typical property policy.

How Does Your Insurance Policy Address This Exposure?

Luckily, most policies address this exposure in some fashion or another. You might not be covered to the extent you need, but normally something is in place. Here are a few ways your insurance provider might be giving you coverage:

  1. Equipment Breakdown or Boiler and Machinery: This policy gives back coverage for the types of losses described above (among others). As long as the property is indicated in the equipment breakdown declarations, the causes of potential loss of the equipment breakdown policy is included
  2. Broadening Endorsements: Most property policy offers broadening endorsements to give a specific limit to cover ‘computers and equipment’ or ‘computers and media’, etc. These coverage features give back these excluded losses specifically for computers and media.
  3. Computer and media forms: Some insurance companies have specific computer coverage forms that will allow you to schedule your computer and other electronic data equipment.

What Do You Need to Do?

Here is what I’d suggest you do as far as your computers are concerned:

  1. Catalog all of your computer and related hardware and equipment.
  2. Estimate the replacement cost for this equipment.
  3. Discuss with your insurance agent how this equipment is currently covered under your policy.
  4. Amend limits or add the necessary coverage to provide the broadest coverage for the variety of causes of loss that can happen to this equipment.
  5. Note that you’ll want to differentiate computer and related equipment that is often away from premises such as laptops, projectors for presentations, etc. (We won’t dive deep into the differences… your agent should be able to walk you through this).

Data and Media

Most property insurance policies intend to cover tangible things. Data and memory are simply 1s and 0s that require the aforementioned EDP equipment to translate. It exists in code. You can’t touch it or feel it.

Special consideration has to be given to (a) the cost to recover the types of data/media that you can purchase again, i.e. software and (b) the cost to recreate, reprogram, repair, or otherwise restore records and data and media that were part of your organization’s work.

Some things to consider around data:

  1. What are your backup procedures?
  2. What would the cost be to your organization to recreate your existing data?
  3. What is the cost for your current software?  Take special note of software that is simply downloaded in addition to the software you buy via traditional means.
  4. What about archived data on disks, tapes, or other storage methods?

We had one client who lost videotaped interviews in a small water damage loss. The costs might have been relatively steep to recreate and/or salvage what they could from videotapes that had partial damage.

How to address this exposure via insurance:

  1. After cataloging your data and media, discuss how they are currently covered under your policies (similar broadening endorsements will address some of this exposure).
  2. Make sure to tighten up non-insurance risk management (i.e. cloud data storage solutions, off-site data storage in multiple locations, etc.)
  3. Consider liability issues regarding data: Do you have private client or donor information stored on your servers and computers? What if someone steals a laptop and gets access to the information on it?

Final Thoughts

The upshot is to remember that computers and data and media are not simply property. They have very different exposures to loss than your office furnishings.

Make sure to discuss these special circumstances with your agent to make sure you got yourself covered sufficiently. The costs, more than likely, will not be huge to shore up your insurance program.

The most helpful thing you can do as an insurance client is to be aware of what you need as a business and as a nonprofit. It’s on your agent to help you match your assets and exposures to the appropriate polices.

Speak Your Mind

*