IT Freelancer Ruins Advertising: Financial Loss Insurance Kicks In
It’s often the little things that determine the success or failure of a project. A tiny bit of carelessness even in corporate marketing campaigns can be enough for an entire project to degenerate from an advertising success into a nightmare for everyone involved. That’s precisely what happened in this damage event where an IT service provider from the Netherlands was hit particularly hard with a claim for compensation of 750.000 euros.
Programmed Form Created To Generate Addresses
Let’s start from the beginning: As is common in many industries, a large corporation placed its online marketing in the hands of experts in this damage event. The Dutch company commissioned an agency with advertising work, with an annual budget of two million euros. This also included placing a form on various websites. Anyone interested in what the group had to offer could register using this form. In the course of this process, addresses should also be generated - including automatic forwarding to the company. The group wanted to resell the data records created this way to an outsourced sales organisation.
In order to get the project off the ground, the advertising agency commissioned an IT service company to develop the software for the online form. The generated addresses were supposed to be sent directly to the client as formatted data records. The contract for this work amounted to 15.000 euros. During the entire project, the IT service company worked exclusively with the advertising agency - they had no contact with the group that originally commissioned the project.
But that wasn’t the full extent of the outsourcing either. The IT company also passed on the development of the form to an IT freelancer. He immediately devoted himself to the project and repeatedly tested his work extensively. But unfortunately, these tests were never done with the original target email addresses of the client company, because they could only be entered shortly before the form was finalised. The form finally went live and the mistake took its course...
Typo Ruins Marketing Campaign
After more than two months without a single email to the Dutch group, they were surprised: How could the marketing campaign not get a single response? The people responsible started investigating the reasons for this and also took a look at the form created by the IT freelancer. One too many $ signs had crept in there.
A fatal programming error: Although around 2.970 addresses had been collected - which means the advertising campaign was quite successful - they couldn’t be emailed to the client’s outsourced sales organisation due to the typo. Unfortunately correcting the error straight away didn’t help much. The addresses were already eight weeks old and couldn’t be used anymore for sales.
This example is unfortunately not an exception: Another IT freelancer found out how quickly a wrong click can lead to immense damage when updating a website. We tell you what happened in our article Website Update Error – 90.000 Euros in Revenue Lost.
As if that weren’t enough, the group from the Netherlands that commissioned the agency had already cut the agency’s budget when it appeared the advertising campaign was unsuccessful. And when the programming error finally came to light, the company made further budget cuts. For its part, the advertising agency reacted to the unfortunate situation by providing the company with free advertising space on a popular website in an attempt to prevent claims for compensation and to save its own image. According to their own statements, this advertising space was valued at 150.000 euros.
Claim For Compensation Of 750.000 Euros - a Case For Professional Indemnity Insurance
But in addition to these preventive measures, the agency also wanted to ensure that the damage caused was not solely their responsibility. So they demanded reimbursement from the commissioned IT company – in the amount of 750.000 euros. The agency arrived at the total with these figures: 150.000 euros for the free online advertising space plus a calculated loss of profit of 600.000 euros.
Confronted with this immense claim for compensation, the IT company turned to the insurance professionals at exali, who, after careful examination, forwarded the case to the insurer. Fortunately the company had taken out Professional Indemnity Insurance for precisely such situations and they began handling the matter. The insurance actually also covered the specially hired IT freelancer who had caused the damage. Although he had not taken out his own insurance, the IT company’s Professional Indemnity also extended to freelancers.
The IT company in this case had insurance coverage for 1.5 million euros for financial loss - even though they “only” carried out smaller contracts. This clearly shows that even when it comes to insuring small companies, a high coverage amount is crucial. Because if there is a problem, claims in the six-digit range can quickly arise, which may not be covered by insurance with a lower coverage amount. That’s why Professional Indemnity Insurance from exali allows you to choose between coverage amounts of 100.000 to 3.000.000 euros for financial losses.
Claims Processed On Behalf Of The Insured
The insurer’s claims department and a number of specialist lawyers checked whether the advertising agency’s claims were well-founded. This turned out to be difficult because the connection between the IT freelancer’s programming error and the advertising agency’s budget loss couldn’t be demonstrated clearly. So the actual amount of the damage remained highly disputed.
Eight months of negotiations ultimately passed before the insurer reached an agreement with the advertising agency on behalf of the IT company with a settlement of 200.000 euros for compensation. The advertising agency wasn’t able to enforce its original claim of 750.000 euros, but even the negotiated settlement payment would almost certainly have plunged the IT company into insolvency. And handling the claim on their own would have been much more challenging.
Essential Coverage: Passive Legal Expenses Insurance
This clearly shows how important Professional Indemnity Insurance that fits your needs can be: Because in this case the insurer not only paid the damage, which ultimately amounted to 200.000 euros, but also fought the excessive compensation claim and negotiated a settlement with the advertising agency at the insurer’s own expense.
This defence was covered under so-called Passive Legal Expenses Insurance. In the context of Professional Indemnity Insurance, Passive Legal Expenses Insurance means that the insurer bears the costs of defending against claims and negotiating unjustified claims in addition to paying compensation. This includes, among other things, financial expenses for legal assistance, court and expert costs as well as witness expenses and travel expenses.
All of this makes Passive Legal Expenses Insurance an indispensable part of any Professional Indemnity Insurance, because self-employed persons and freelancers in particular have a high risk of facing legal disputes that have to be negotiated at great expense or ultimately have to be clarified in court.
Professional Indemnity Insurance also meant salvation from a claim for compensation of 900.000 euros in this case: Ransomware: A Damage Event Involving a Virus and Inadequate Protection.
Professional Indemnity As Insurance For Your Livelihood
This damage event impressively shows that tailor-made Professional Indemnity Insurance from exali can secure a company’s financial existence in difficult cases - not just by covering damage payments, but also by fighting unfounded or excessive claims.
Do you want to insure your business? Our customer advisors will be happy to advise you in German or English from Monday to Friday, 9:00 a.m. to 6:00 p.m. CET on +49 (0) 821 80 99 46-0! Or you can simply use our contact form.
Vivien Gebhardt is an online editor at exali. She creates content on topics that are of interest to self-employed people, freelancers and entrepreneurs. Her specialties are risks in e-commerce, legal topics and claims that have happened to exali insured freelancers.
She has been a freelance copywriter herself since 2021 and therefore knows from experience what the target group is concerned about.