CrowdStrike Holdings Inc (NASDAQ:CRWD), the cybersecurity firm at the centre of a disastrous global IT outage, is at risk of legal action from the litany of airlines, telecoms groups and retailers that were knocked offline in July following a botched Microsoft content upgrade.
Delta Airlines reportedly became the first major corporation to launch compensation claims against both CrowdStrike and Microsoft after engaging David Boies, the chairman of Boies Schiller Flexner, to pursue legal action.
CrowdStrike today rebuffed Delta’s claims that it should take the blame for the outage that caused half a billion dollars in damages to the airline. However, it is expected that Delta will not be the last to pursue similar claims.
Nevertheless, Wedbush analysts have suggested that the potential liabilities facing CrowdStrike are “a lot less than feared”.
Citing ‘legal experts’, Wedbush said CrowdStrike’s potential liability and damages risk arising from Delta’s legal action would be in the "single-digit" millions range, despite the estimated $500 million in losses at Delta.
Wedbush extrapolated that around $200 million should be earmarked for other compensation claims arising from the estimated $7 billion to $8 billion lost during the outage.
Wedbush also highlighted that "CrowdStrike's user contracts are very favourable to CrowdStrike and include prohibition on collection for revenue losses and liability limitations."
In addition to legal protections, any potential liabilities would first be covered by CrowdStrike’s errors and omissions (E&O) insurance.
New business losses ‘a concern’
The bigger issue for CrowdStrike will come from a loss of new business, Wedbush suggested.
“Even as the risk of liability/damages appears minimal, the risk to new business remains a concern,” said analysts.
“Given the outage, the company will have less negotiating leverage which could, in turn, jeopardise upsell/cross-sell opportunities and lead to contract renewals on less favourable terms… or the possibility of disgruntled customers not renewing and instead going to competitors.”
However, Wedbush added that “material churn of customers is highly unlikely, as there are few competitors, and the transition costs would be significant for customers”.