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Election Results Delayed Due to Alleged App Failure

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Featured Solutions: Cyber/Privacy/Technology/Media

A smartphone app marred by alleged technical and design flaws is being blamed for a days-long delay in reporting results from the February 3 Iowa U.S. presidential election caucus. The backup, which caused widespread confusion among voters and Democratic presidential candidates, has been linked in part to an app developed by Shadow, Inc. for the Iowa Democratic Party.

Although the developer’s CEO Gerard Niemira said only a quarter of caucus chairs used the app for submitting results—instead, most called in results to jammed phone lines—party officials contended the app had reporting system coding issues and was difficult to download, and others pointed to a rushed process in which developers hurried to prepare the app in less than two months. The systemic failure prompted finger-pointing from officials and recanvass requests from two presidential candidates.

“Unfortunately, those who suffered most from what seems to have been a rushed effort to produce an app were Iowa voters,” said Sean Finch, Underwriter, Cyber, Node International, London, England. “They were forced to endure a huge delay in getting the results as well as distrust in the results that were logged by the app. Someone will be held accountable for the chaos; most likely that will be the company that created the app.”

“Unfortunately, their good intentions do not make them immune to lawsuits and complaints. Without a Technology E&O Insurance policy in place, a developer or other technology company could be forced to pay considerable legal and remediation costs.” – Sean Finch, Node International

At a recent press conference, the chair of the Iowa Democratic Party declined to answer whether a lawsuit would be filed against Shadow, Inc. Nevertheless, the financial ramifications of technology errors—from claims by those who commissioned an app to lawsuits brought by any number of other parties—are frequently severe. Human error remains likely despite the best efforts to control it, Finch said, explaining that a Technology Errors & Omissions (E&O) Insurance policy would typically provide coverage for app developers in the event that such errors have widespread ramifications, such as those that plagued this year’s Iowa caucus.

Unfortunately, their good intentions do not make them immune to lawsuits and complaints. Without a Technology E&O Insurance policy in place, a developer or other technology company could be forced to pay considerable legal and remediation costs.

- Sean Finch, Node International

“When app developers must rush their processes to meet their clients’ needs, the likelihood for errors increases considerably,” said Derek Kilmer, Manager, Professional Liability, Burns & Wilcox, Detroit/Farmington Hills, Michigan. “While quality controls and sound risk management procedures are essential, they do not address or mitigate every potential error or circumstance that could arise.”

Cultural reliance on technology increases potential for errors

While the app problems in Iowa have focused attention on technology hazards pertaining to elections, technology-related errors are an increasing concern in many industries, including healthcare. Our surging reliance on technology means these issues are happening more than ever—even as researchers scramble to design new tools to prevent, detect and address them.

“Whether in government or manufacturing or any other industry, errors can occur in the process of creating the technology we use,” Kilmer emphasized.

Artificial intelligence presents another growing exposure. According to the latest International Data Corporation Worldwide Artificial Intelligence Systems Spending Guide, global spending on AI systems will be almost $98 billion by 2023—a marked increase over the $37.5 billion spent in 2019. In Canada, where Toronto has the highest concentration of AI start-ups in the world, the government spent more than $1.3 billion on AI research and development from 2016 to 2017.

“Most third-party companies are utilizing the AI experience for at least one fragment of their sales process. That opens up more companies to increased potential problems and liability,” Kilmer said.

A prime example is happening now in Detroit, Michigan, where officials from General Motors are responding to reports that nearly 1,700 pickup truck owners have experienced electronic brake failure after a recall repair to the automaker’s OnStar app.

GM has contacted 900 affected customers to bring their vehicles to dealerships for an immediate fix and advised 160,000 other customers not to drive their vehicles if certain warnings appear on the instrument panel. While GM reported no known injuries related to the problem, some affected pickup owners claimed they narrowly escaped a crash, and safety advocates have alleged that GM put customers at risk by not notifying them of the issue sooner.

Those responsible for technology failures typically act without malice and simply make honest mistakes, Finch pointed out. Unfortunately, he added, their good intentions do not make them immune to lawsuits and complaints. Without a Technology E&O Insurance policy in place, he said, a developer or other technology company could be forced to pay considerable legal and remediation costs.

Self-driving vehicle technology is also in the news as safety advocates push for more regulations on the industry, especially in light of a March 2018 incident in which an autonomous Uber car struck and killed a pedestrian. Bodily injury and loss of life are unfortunate possibilities that are likely to become more frequent, said Kilmer.

“As our culture continues its pursuit to automate and rely on technology in our day-to-day lives, the potential for technology errors and catastrophic loss will only increase,” Kilmer emphasized.

Detection delays, widespread use bring greater costs

Software failures impacted 4.4 billion individuals and cost more than $1.1 trillion in assets in 2016, according to a global report by Tricentis. Though the scale of technology errors varies widely, the cost of a mistake is often significant, Kilmer noted.

“In any company that relies on technology to produce its product—a manufacturing firm, an automaker, a small business—an issue can still happen, and that issue could cost a huge sum of money that could potentially put a company out of business.” – Finch

“Due to costly investigation and litigation fees, we see financial costs quickly compound to anything from six-figure to million-dollar losses,” he said. “The amount of the loss is largely determined by how dependent the insured company is on the affected technology, or by what part of the supply chain uses the technology.” The amount also varies by industry, Kilmer added. “You are going to have higher losses if you are developing a payment processing system, for example, and lower losses if you are just consulting on the app development.”

In any company that relies on technology to produce its product—a manufacturing firm, an automaker, a small business—an issue can still happen, and that issue could cost a huge sum of money that could potentially put a company out of business.

- Sean Finch, Node International

A technology error is not always detected immediately; this adds to potential costs as well, according to Kilmer. “We have seen anything from an error that is noticed immediately upon the product’s first use, or detection could take up to a year,” he said.

Potential delays in detection are exacerbated when a great many users encounter faulty technology over a short period of time. When a software bug caused Comcast’s data-usage meters to give customers false readings in mid-2019, it took two months before the error was discovered and 2,000 customers were ultimately issued refunds and additional $50 credits.

“If you are a cloud provider, for example, and an error shuts down an entire network, affected companies can lose business income or face business interruption, potentially totaling millions of dollars,” Kilmer said. He noted the importance of talking to your insurance broker or agent about benchmarking adequate Technology E&O Insurance policy limits for your particular exposures.

Consult experts to anticipate risks and mitigate fallout

Investigations following a false ballistic missile alert that was sent out in Hawaii in January 2018 found human error, inadequate safeguards and software design problems in the state’s alert origination software at fault. The incident resulted in at least one lawsuit against the state of Hawaii by a man who claimed the false alert and ensuing panic caused his heart attack.

The unexpected failure of Target’s expansion into Canada has been linked in part to technology glitches. Even with rigorous testing, human errors related to the development, deployment or use of technology cannot be completely avoided, Finch said.

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A Technology E&O Insurance policy is a reliable means of minimizing a company’s exposure to the kind of financial losses that could put it out of business.

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- Derek Kilmer, Burns & Wilcox

“You cannot rely on a human being to get things perfectly right every single time,” he said. “In any company that relies on technology to produce its product—a manufacturing firm, an automaker, a small business—an issue can still happen, and that issue could cost a huge sum of money that could potentially put a company out of business.”

While Technology E&O Insurance is often associated with app developers, website designers, internet service providers and software engineers, more companies are now recognizing the potential for exposure related to software bugs and other tech errors, Kilmer said.

“If you are touching the technology at any point in the process before it gets to the actual third-party user you have some level of exposure,” Kilmer said. Even companies that play a minor role in an app or website’s development or deployment could face major losses, he added.

Kilmer emphasized that a company’s Technology E&O Insurance coverage needs, as well as the potential need for related policies, like Cybersecurity Insurance, should be discussed with an expert in the field—especially as the market for this type of insurance continues to evolve rapidly.

“Technology E&O Insurance policy is a reliable means of minimizing a company’s exposure to the kind of financial losses that could put it out of business.”

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