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Insurance companies have been slow to introduce insurance products specifically tailored to the risks faced by data center operators. Until that occurs on a broader scale, operators will have to rely on more traditional insurance policies covering these risks. Some such policies are written on standardized insurance industry forms, but some are not. The terms of policies written on non-standard forms tend to vary from policy to policy and may be more negotiable than policies written on standardized forms.
But even standard policies – such as property and general liability – can be, and often are, modified meaningfully by endorsement. Thus, the extent of coverage available for key data center losses may turn on the operator’s attention to detail when purchasing and renewing its insurance policies. We review below the types of insurance coverages data center operators can purchase to protect against these risks and steps they can take to ensure maximum protection.
Property coverage
Property policies typically provide coverage for physical damage to the insured’s tangible assets, including its facilities and equipment. Some policies also provide “business interruption” coverage, which protects the insured’s income flow during the period that its normal business activities are interrupted by physical loss or damage covered by the policy. While property policies often are written on standardized forms, numerous forms exist in the marketplace that may vary in the scope of coverage provided.
A common example is water damage, which may result from both natural events and failures of a data center’s key infrastructure. Although water damage may be excluded generally under standard-form property policies, most policies can be endorsed to provide at least some protection – for example, for groundwater intrusion or malfunctioning pipes or sprinkler systems. Likewise, coverage for damage to computer equipment can vary substantially from policy to policy, and even policies that cover computer hardware may exclude coverage for the costs of replacing lost data.
In addition, policies vary in the scope of coverage provided for damage resulting from public utility incidents, including interruptions of power supply. For example, a policy may provide coverage for damage caused by a utility power surge, but not for damage caused by a utility power failure. Given that computer equipment and data are often a data center’s most valuable assets, data center operators should scrutinize their policy language to ensure they are receiving the broadest possible coverage with adequate limits.
- Operation of data centers presents an often-unique portfolio of risks that may not always fit neatly within protections provided by existing insurance products
- Key risks include physical damage to the data center or its contents, service interruptions and related downtime, data breaches and potentially harmful discharges
- By ensuring that its insurance policies are providing maximum protection against these risks when purchasing or renewing its policies, data center operators may avoid costly surprises if any of these risks ultimately materialize