What is EDP insurance coverage?
So many law firms are computer-dependent, and EDP insurance coverage is a necessity. Rather than insuring the computers as pieces of office or manufacturing equipment, the Electronic Data Processing (EDP) form responds to the need to protect hardware, software, media, and other exposures unique to this equipment. Coverage is available for hacking (unauthorized computer system access), virus damage, power shortages, overload, and outages.
There isn’t a standard form for providing Electronic Data Processing or Computer coverage. Because many insurers offer so many different forms, businesses seeking coverage must take extra care to understand what is covered.
Any commercial operation that owns and/or uses computers and other data processing equipment is eligible for EDP insurance coverage. Commonly a policy covers hardware, media, programs/applications, data records, proprietary programs, loss of income, and (on- or off-site) Website servers.
How the EDP insurance coverage applies depends upon the policy definitions of key terms, including “computer hacking,” “computer virus,” “data records,” “media,” “telecommunications equipment,” and others. EDP policies have many defined terms because technology is dynamic. Liberal use of specific policy language helps to preserve an EDP policy’s intended coverage.
Typically, coverage is provided against a specific list of events that can cause a tangible loss to electronic equipment. Different coverage applies to major areas of EDP, such as hardware, software, and Website servers. Covered businesses usually must comply with certain provisions to qualify for coverage, such as properly creating and storing backup programs.
There are certain types of property that, generally, are ineligible for coverage under an EDP policy, such as:
- Hardcopy accounts, bills, evidence of debt, records, abstracts, deeds, manuscripts, program documentation, and similar property
- Portable computers that are stolen or that disappear.
- Any property used for illegal transportation or that is contraband.
- Any property that is leased or rented to others
- Currency, food stamps, lottery tickets, money, notes, and securities
- Property held for sale.
One area that a business must pay attention to is how losses are settled. Are claims handled according to the lost equipment’s current value (Actual Cash Value – ACV) or according to what is necessary to replace the property? Settlement based on ACV can be a problem for companies that don’t regularly upgrade their EDP equipment. Technology changes so fast that payment for equipment purchased years ago is far less than needed to secure new equipment. On the other hand, replacement cost coverage would not be as critical for a firm that regularly changes equipment as damaged property would likely be newer.