TeknoLaw.com - Castro & Baker, LLP Attorneys Counselors at Law
Contact Us Today

Phone: (512) 732-0111
            (702) 988-2631
E-mail: dcastro@teknolaw.com
           jamesmbaker00@hotmail.com

Lost Electronic Data

Many businesses can operate without fancy buildings, but not without their computers and electronically stored data. Computers store electronic data that is worth hundreds of thousands and sometimes millions dollars. This data is considered valuable property just like your car or your office furniture. Many things can happen to damage or destroy this data, such as power outages, computer programs that unintentionally over-write valid data, unintentional deletion or computer viruses. Sometimes, the maker of defective software or defective hardware might be to blame. Aside from the lost data itself, your business might be interrupted causing you to lose money from sales you could have made otherwise.

If your electronically stored data is damaged or destroyed irreparably, or your business is significantly impacted by a shut down in your system, you may be entitled to sue whoever caused the problem. In addition, you may be able to file an insurance claim just as you would to recover the value of any other lost or damaged property. Some "all-risk" property insurance policies specifically cover the loss of electronic data. A common clause in this type of policy is as follows: "This policy insures against all risks of direct physical loss or damage, except as excluded, to covered property." Despite the existence of this clause in your policy, insurance companies have begun to argue that consequential damage caused by lost data or an interruption in business is not "physical loss" to "covered property."

However, at least one Court has rejected this argument. In American Guarantee & Liability Insurance Co. v. Ingram Micro, Inc ., No. 99-185 (D. Ariz.), the Court held that "physical" loss or damage includes the destruction of electronic data. In this case, Ingram Micro, Inc. filed an insurance claim to recover financial losses it suffered when it could not conduct business due to a power outage that caused its electronic equipment to stop working. Although power was shortly restored, programs and data stored electronically in RAM were lost and had to be reloaded. The Court ruled that:

"Physical damage is not restricted to the physical destruction or harm of computer circuitry but includes loss of access, loss of use and loss of functionality." The Court also cited other laws that make it clear that when a computer’s data is unavailable, there is damage; when a computers services are interrupted, there is damage; and when a computer’s software or network is altered, there is damage.

Timing is important if you are going to file an insurance claim. Many insurance policies have strict time limits for the filing of claims. If you have suffered a loss of business due to inoperable computer equipment or software, contact us at:

(512) 732-0111

info@teknolaw.com