Cloud-based computing complete with remote data storage has become quite popular over the years. Businesses have instant access to their information, no matter where their location is, and they can easily collaborate with others. Most of the time this process works seamlessly. Until it doesn’t and the cloud computing host loses data, whether sensitive or not. When this happens, a company is limited with what they can do, because there is often a clause in the contract that limits the host company’s liability for data loss.
Back in September of 2020, the New Hampshire Supreme Court upheld the validity of the aforementioned clause in the case of Mentis Sciences v. Pittsburgh Networks, LLC. The business that owned all the data that was lost was unable to hold the cloud computing host responsible for the cost of recreating any lost data or any lost profits. The data loss was the fault of the cloud computing host in this case, because one of their physical drives failed. And since the company had never backed up the data properly, the data was lost forever. And yet, who was at fault did not matter.
In this case, the court ruled that the damages would be limited to the fair market value of the business’s services. The amount of money the business received was basically what they paid for the contracted service.
If your business currently has a contract with a cloud computing host, you will want to look at your contract closely. You may see a clause within that contract that states something similar to the following:
“The cloud computing host would not be liable for “indirect, incidental, punitive, or consequential damages, including but not limited to loss of data, business interruption, or loss of profits”.
If you see that clause, your business will also not receive any restitution if your data happens to be lost.
What a Business Can Do Before Signing a Contract with a Cloud Computing Host
Thanks to this court ruling, any business that utilizes a cloud computing host will want to take extra steps to ensure their data is secure. They should also consider seeking additional protection in case their data is ever lost.
A business can obtain legal advice before signing any service contract with a cloud computing host company. This will ensure a business will know all of their risks upfront and can prepare for those risks. There is also a chance a business can negotiate the limited liability clause or have a liquidated damages provision added to the contract.
Private insurance is another option that can be utilized to cover any third-party data loss.
It is always a good idea for any business to maintain their own backups of files and data, even if it is stored on the servers of a cloud computing host company. This way if the host servers go down, or there is an issue, the business won’t lose everything they have worked so hard to build.
Do you have questions about cloud computing hosts or the storage of data and who is responsible? Contact me today and let me answer your questions and help you avoid any issues in the future.