Magazine article Risk Management

Key Considerations for Cyberrisk Coverage

Magazine article Risk Management

Key Considerations for Cyberrisk Coverage

Article excerpt

Today's cyberthreats can trigger multi-faceted losses. A serious cyber incident could cause bodily injury, property damage, business interruption, shareholder litigation, customer privacy litigation, regulatory action, terminations or resignations among senior management, and reputation damage. As such, a host of insurance policies may come into play, including directors and officers, errors and omissions, cyber, property and crime.

If a cyber incident occurs, one of the first steps to take is to provide prompt notice to insurers for all potentially implicated policies. Even if you or your broker believe that coverage may not be available based upon recent cases, err on the side of providing notice under most circumstances.

For example, after a social engineering scheme perpetrated by fraudulent emails and phone calls resulted in nearly $5 million in improper wire transfers, a New York federal court recently found that a policyholder had crime insurance coverage under both its computer fraud and fraudulent funds transfer coverage. This was in stark contrast to a previous Fifth Circuit ruling that reversed a Texas court finding of coverage for the policyholder under similar circumstances.

Last year, the United States Fourth Circuit Court of Appeals found CGL coverage for defense of a privacy class action in a case where patient medical data was exposed on a publicly searchable database. This stood in contrast to a prior New York trial court ruling that went the insurance company's way. The bottom line is that the law, the policy language, and interpretations thereofcan vary from incident to incident. Consequently, to maximize recovery, it is usually best to provide notice on all potentially implicated lines of coverage.

In addition, it is important to periodically review your insurance coverage to make sure your company is adequately protected. It is particularly important to:

* Cover time-element losses: Business income coverage and reputation damage coverage have taken on added importance in the wake of recent cyber events. As a breach can impact the fundamental ability to continue business operations, consider insurance coverage that pays time-element claims resulting from reputation damage and business interruption. …

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