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Service credits are pre-agreed reductions in fees that an IT supplier gives a client when it misses a service level. They matter because tech PI is usually built around negligence, so many credits and penalties fall outside cover.
Part of: IT and technology business insurance
In short
Tech PI usually responds to claims for loss caused by a negligent act, error or omission in your professional services. Service credits, liquidated damages and fee refunds are contractual remedies that apply whether or not you were negligent, so they are commonly excluded or only partly covered, subject to the policy terms. Some wordings give limited cover for liquidated damages or service credits to the extent they do not exceed what you would have owed anyway. The best protection is in the contract: cap credits, make them the sole remedy for minor failures and keep them proportionate.
Most technology professional indemnity policies are written to cover your legal liability to clients for loss caused by a breach of professional duty, typically negligence, errors or omissions. A service credit is different. It is triggered automatically when a measured metric, such as uptime or response time, falls below a threshold. No court has to find you were careless.
Because of that, service credits, liquidated damages and refunds of your own fees are commonly excluded or restricted. Some wordings carve back limited cover where the contractual sum does not exceed the damages you would have been liable for in the absence of the contract term. Others exclude them entirely. Whether you have cover is always a question of the specific wording.
| Remedy | What it is | Typical tech PI position |
|---|---|---|
| Service credits | Pre-agreed fee reduction for missing an SLA | Commonly excluded, or covered only to the extent of liability that would exist anyway |
| Liquidated damages | Pre-agreed sum for a specified breach, often delay | Often excluded or restricted to what general damages would have been |
| Refund or reduction of fees | Returning what the client paid you | Commonly excluded as a return of your own remuneration |
| Rectification | Fixing defective work | Sometimes covered by an extension, subject to sub-limits |
| Damages for negligence | Compensation for the client's loss | The core of the cover, subject to the policy terms |
The usual driver is the contractual liability exclusion. Most PI wordings exclude liability you have assumed by contract beyond what you would have had at law, so an SLA regime that goes further than negligence-based damages is likely to sit outside cover. Our page on whether PI covers liquidated damages and delay covers the same issue in other sectors.
Under English law a clause can be unenforceable as a penalty. In Cavendish Square Holding BV v Makdessi [2015] UKSC 67, the Supreme Court said the true test is whether the provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to the innocent party's legitimate interest in performance. Most commercially negotiated service credit schemes are unlikely to fail that test, so suppliers should assume they will be enforced.
Where a supplier contracts on a client's written standard terms, section 3 of the Unfair Contract Terms Act 1977 means the client cannot rely on its own terms to exclude or restrict its liability for its breach unless the term satisfies the requirement of reasonableness. That protects you against one-sided client exclusions, but it does not usually unwind a service credit regime you have agreed, so negotiation before signing matters more.
These examples are illustrative only. The outcome in a real case depends on the contract, the facts and the policy terms.
A hosting provider misses its 99.9% availability target for three months running and gives the client credits totalling a tenth of annual fees. The client has suffered no provable loss beyond inconvenience. Tech PI is unlikely to respond, because the credits are a contractual price adjustment rather than damages for negligence.
A managed service provider's misconfigured backup means a client loses a week of data. The client claims service credits under the SLA and also sues for its recovery costs and lost profit. The credits are likely to be outside cover; the negligence claim for consequential loss may fall within tech PI, subject to the policy terms and any contractual cap. More scenarios are in IT consultant and developer claims examples.
A software implementer misses go-live and the contract imposes a fixed daily sum. If the wording covers liquidated damages only to the extent of general damages that would have been payable anyway, any excess over that figure is likely to be uninsured.
Before relying on cover for any SLA-related payment, read four parts of the policy together.
If a large client insists on an SLA regime your policy will not support, the gap is a commercial risk you carry. Pricing it into the contract, or negotiating the regime down, is usually better than discovering the gap after a claim.
Apex arranges tech PI for IT and technology businesses and managed service providers; a broker reads every enquiry.
Usually not in full. Service credits are a contractual price adjustment triggered by missing a service level, regardless of negligence, and most tech PI wordings exclude contractual liability beyond what you would owe at law. Some policies give limited cover where the credit does not exceed damages you would have owed anyway. Check your specific wording.
It depends on the policy. Many wordings exclude liquidated damages or restrict cover to the amount of general damages that would have been payable without the clause. Any amount above that is commonly uninsured. If your contracts carry delay damages, ask your broker how your policy treats them before signing.
Refunds or reductions of your own fees are commonly excluded from tech PI, because they are a return of your remuneration rather than compensation for the client's loss. Some policies offer limited fee recovery or rectification extensions. Check the wording and any sub-limits.
Common approaches include capping total credits in any period, making credits the sole remedy for minor failures, keeping credits within the overall liability cap, defining service levels precisely, and excluding failures outside your control. Reviewing SLA schedules with your broker before signing helps keep the regime insurable.
Send us your current schedules or renewal pack and we will review the whole programme and tell you plainly what to keep and what to change. No fee and no obligation. Or call 0117 325 0027.
Book a programme review Get a quoteApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
