Alfano Law Office, PLLC

Alfano Law Office, PLLC
Phone: (603) 856-8411 • Fax (603) 290-5521
4 Park Street, Concord, NH 03301
  • Home
  • Real Estate Law
    • Road Law
    • Commercial Real Estate Law
    • Tax Abatements
    • Business Law
  • Estate Planning
  • About Us
    • Paul J. Alfano, Real Estate Attorney
    • John F. Hayes, Attorney
    • Terrie Harman, Attorney
    • Privacy Policy
  • Articles
  • Contact Us
    • Directions
  • Road Law Guide
  • NH Tax Abatement
    • Tax Abatement Team
    • Grounds for Abatement
    • Municipal Application
    • Owners of Properties Outside New Hampshire
    • Transfer Tax Allocation
    • Recent Laws and Rulings
  • Resources and Links
    • Allobar Strategies
    • Calendar and Key Dates
    • Equalization Ratio
    • NAPTA
  • Covid-19 Updates
You are here: Home / General / A Cloud Computing Host’s Liability for Data Loss Can Be Limited

A Cloud Computing Host’s Liability for Data Loss Can Be Limited

The advent of cloud-based computing and remote data storage has increased business efficiency and the ability to collaborate with colleagues. However, the reliance on third parties to host crucial and sensitive data can have ruinous consequences for the company if their IT host loses this data. This is especially so as many service contracts for hosting data include clauses limiting the IT company’s liability for data loss.

Mentis Sciences, Inc. v. Pittsburgh Networks, LLC

In Mentis Sciences, Inc. v. Pittsburgh Networks, LLC (September 22, 2020), the New Hampshire Supreme Court upheld the validity of a limitation of liability clause in a data hosting contract and barred the data owner from recovering damages for the cost of recreating lost data and lost business profits. The plaintiff in this case, an engineering firm, lost valuable business data it had been acquiring since 1996 when its IT service provider had one of its physical drives fail. This data loss was permanent because the IT service provider defendant also failed to properly back up the data.

The NH Supreme Court ultimately held the plaintiff’s damages were consequential in nature (meaning they occurred because the other party failed to meet a contractual obligation) and unrecoverable because of the limitation of liability provision in the IT service agreement. The clause at issue in the case clearly stated the IT servicer defendant would not be liable for “indirect, special, incidental, punitive or consequential damages, including but not limited to loss of data, business interruption, or loss of profits.”

This ruling limited damages to the fair market value of the defendant’s services. This is essentially the contract price – a fraction of the actual damages to the plaintiff due to the data loss.

Steps to Seek Additional Protection

As a result of the Mentis Sciences decision, businesses contracting with IT companies to host valuable data should beware.  Before contracting with an IT service provider, businesses should take steps to seek additional protection against data loss and consider:

  • Obtaining legal advice before entering into IT service contracts. This would allow a business to analyze the assignment of risks in an IT service contract and whether it is acceptable to a client.
  • Negotiating a more limited version of the limitation of liability clause. This could provide for specific responsibilities of the IT service provider, which would trigger liability if violated.
  • Including a liquidated damages provision. A liquidated damages clause allows for a set amount of damages to be paid if the contract is breached. This clause may be beneficial to both parties. It could provide higher damages to the customer above the “direct” damages amount, and it could provide solace to the IT servicer as their damages arising from the contract are capped at a set number.
  • Purchasing private insurance to cover third-party data loss.

Limited Liability

On the other hand, IT service providers hosting customer data have a clear incentive to include similar limitation of liability language in their service agreements.   The Mentis Sciences decision provides a definite framework for IT service providers to limit liability so that:

  • The customer ultimately is responsible for the files and data transferred to the host servers. They must maintain their own backup of files and data stored on the host servers. The customer essentially is just paying for space and bandwidth on the host’s servers. If service is down, only the cost of the service is refundable. Otherwise, the IT servicer’s hosting of the data leaves it exposed to open-ended business damages.
  • The IT provider potentially still is liable for direct damages arising out of the contract (based on the value of the performance itself). Limiting all potential liability in an IT services contract otherwise may violate public policy (See Orthopaedic Ctr. of S. Fla., P.A. v. Stryker Corp., No. 08-60742-CIV, 2008 WL 11331981 (S.D. Fla. Sept. 16, 2008)).

The economic loss rule will prevent the customer from pursuing tort recovery for purely economic or commercial losses associated with the contract relationship.

Contact Alfano Law Office here.

Filed Under: General, Legislation

The above information is for informational purposes only and does not constitute legal advice.

Important Registry Updates
Important Court Updates

Subscribe to the Alfano Law Property Rights Alert

Sign Up Now

For Email Newsletters you can trust.
Allobar Strategies

NH Tax Abatement

  • Road Law Guide
  • NH Tax Abatement
    • Tax Abatement Team
    • Grounds for Abatement
    • Municipal Application
    • Owners of Properties Outside New Hampshire
    • Transfer Tax Allocation
    • Recent Laws and Rulings
  • Resources and Links
    • Allobar Strategies
    • Calendar and Key Dates
    • Equalization Ratio
    • NAPTA
  • Covid-19 Updates

NH Real Estate Law Articles

  • Common Neighborly Legal Issues
  • Court Updates
  • Easements
  • Estate Planning
  • General
  • Historic Designation
  • Legal Terms
  • Legislation
    • Business Law
  • New Hampshire Property Tax Alerts
  • Private Road Maintenance
  • Private Roads
  • Property
  • Property Investments
  • Property Rights
  • Property Tax Law
  • Quieting Title
  • Real Estate Law
  • Revocable Trust
  • Road Law
  • Tax Abatement
  • Taxes
  • Zoning Boards of Adjustments

Recent Articles

Private Roads and Easements – What’s the Difference?

You probably think there should be a difference between … [Read More...]

Environmental Clean Up on a Property – Who is Responsible?

Environmental issues are everywhere. Hazards like heavy … [Read More...]

Reasons to Review Your Estate Plan

Have you taken the time to set up your estate plan? If you … [Read More...]

What to Know About Maintaining, Repairing, and Extending Easements on a Property

An easement is a piece of land that people, other than the … [Read More...]

Article Archives

  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • October 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • June 2016
  • April 2016
  • March 2016
  • January 2016
  • December 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • September 2014
  • August 2014
  • June 2013
  • February 2012
  • December 2011
  • May 2011
  • July 2010
  • December 2005
  • Facebook
  • LinkedIn
  • Twitter

Alfano Law Office, PLLC, 4 Park Street, Concord, NH 03301 USA | Phone: (603) 856-8411
Copyright © 2022 · Alfano Law Office, PLLC. All Rights Reserved · Website design by InterActive Synergy, LLC