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LEXINGTON INSURANCE CO.
In 2010, one of Lexington Insurance Co.'s hospital clients pointed out that a technology vendor contracted to carry out a large-scale update to its information technology systems had placed strict limitations on its own liability for monetary losses or other damages incurred by project owners, regardless of fault.
“Those kinds of limitations on liability had become pretty much standard in the IT industry,” said John Parente, Lexington's Boston-based chief innovation officer. “If there was negligence on the part of the IT company, (the client) really had a considerable gap in coverage.”
That conversation, Mr. Parente said, was the seed from which the company's Parity technology contract risk policy would emerge two years later, in May 2012.
Specifically, he said, Parity is designed to reimburse business interruption losses sustained as a result of an IT contractor's negligent errors or omissions. In addition, the policy provides coverage for a project owner's losses stemming from third-party liabilities, where an IT contractor's negligence has prevented the policyholder from meeting external obligations. The policy also covers the cost of replacing an IT vendor.
The product has earned a 2013 Innovation Award from Business Insurance.
Mr. Parente said one of the most difficult aspects of Parity's development was the coordination of coverage for first- and third-party errors and omissions losses under the same policy.
“The first-party elements were pretty straightforward,” Mr. Parente said. “The third-party aspect of it was more difficult, in which the project owner is trying to fulfill an obligation to another company, and the contractor's negligence creates a loss for that company as well as the project owner. Rolling all of that into one product was quite challenging.”
Since its launch, Mr. Parente said Parity has drawn widespread interest from clients in a range of industries and sectors, including health care, manufacturing and legal services.
“It was definitely something that, once we brought it up to a number of our clients — particularly larger clients — a lot of them told us that they were interested in the concept,” Mr. Parente said.
Products and services ranging from a Web-based portal to ease the process of complying with state auto insurance requirements to software that spots questionable prescription drug use have been recognized with 2013 Innovation Awards from Business Insurance.