Australia: Cybersecurity insurance: should your company consider it?

Last Updated: 1 March 2015
Article by Craig Holland

In brief - General liability policies may not cover cybersecurity risks adequately

The media attention given to Sony's cyber attacks is a timely reminder of the risk of information security breaches. All businesses, large and small, should check that their insurance policies provide adequate coverage for cybersecurity risks and ensure that they have proper risk management processes in place.

Be aware of over reliance on commercial general liability policies

The cyber attack on Sony Pictures in November 2014 highlights the risks companies face in respect of information security breaches, and the need for companies to consider cybersecurity insurance. The cyber attacks on Sony Playstation in April 2011 provide a clear example of the way in which various insurance polices will respond to information security breaches, and raise concerns that many entities may be overly reliant on inadequate commercial general liability policies.

In our October 2014 article How should directors and officers protect their company from security data breaches, we explored various risks associated with information security breaches and discussed the considerations that companies should put in place. We now examine the ability to manage and transfer the economic risk of an information security breach through cybersercurity insurance.

Does your insurance cover liabilities and risks of an information breach?

The liabilities and risks of an information breach are numerous and losses can be significant. The Ponemon Institute's 2014 Cost of Data Breach: Australia report found that the average cost of a data breach experienced by 22 Australian companies in 2013 was $2.8 million.

Potential liabilities and risks of an information breach include:

  • reputational risk
  • investigation by regulators (e.g. Office of the Australian Information Commissioner and Office of the Privacy Commissioner)
  • fines following breaches of privacy
  • misleading and deceptive conduct
  • breaches of continuous disclosure obligations
  • breaches of fiduciary duty
  • breaches of the duty of confidence
  • breach of contract
  • breach of the duty of care (negligence)
  • infringement of intellectual property rights.

It is important for companies to consider to what extent, if at all, these risks are covered under their current insurance program.

Cybersecurity risks: coverage under traditional insurance policies

Various "traditional" insurance policies may provide limited cover for information security breaches, including:

Commercial general liability (CGL) policies: The terms and exclusions under a Commercial GL Policy will vary widely in respect of information breaches and may even exclude cybersecurity cover. Most CGL policies will include some type of cover for personal and advertising injury, but it is unlikely that this will extend to most information breaches.

Commercial property (business interruption) policies: Commercial property policies have traditionally focused on physical losses. It is possible that cover may be provided for loss of information systems where the loss is caused by a physical event, for example, due to theft.

Directors' and officers' (D&O) liability policies: D&O policies may respond to actions brought against directors and officers that flow from an information breach.

Errors and omissions (E&O) policies: E&O policies provide protection from negligence arising from the provision of services. E&O may protect you as a consumer of technological services - for example, if your data storage provider corrupts your data - but are unlikely to cover you for your own information breach.

The difficulty with traditional policies is that they do not specifically consider the information breaches and the losses that ensue. Some policies even specifically exclude cybersecurity risks.

Cybersecurity breaches: coverage under a cybersecurity policy

Given that information security risks are numerous and varied, it will not be uncommon for an entity to find that their traditional forms of insurance may not adequately respond in the event of an information security breach.

A cybersecurity policy is designed to cover specifically the liabilities that arise from information security breaches The coverages found under a cybersecurity policy are as follows:

First party loss

  • Remediation / crisis management costs
  • Information asset coverage
  • Network interruption and extra expense
  • Cover for business interruption and extra expenses caused by malicious code (i.e. viruses, worms, Trojans and other malware)
  • Extortion

Third party loss

  • Liability for claims by third parties for data breaches, transmission of malicious code, denial of third party access to insured's network and other security threats

The Sony cyber attacks illustrate the contrasts in cover that is offered under traditional insurance policies as opposed to a dedicated cybersecurity insurance.

Playstation cyber attack not covered by commercial general liability policy

In 2011, hackers breached Sony's Playstation Network and gained access to approximately 77 million user accounts which held personal information, including credit card details.

Sony estimated their losses from the 2011 information breach to be USD $170 million and sought indemnity under the personal and advertising injury aspect of their CGL policy. The CGL insurer denied Sony's indemnity claim, which was challenged in the New York Supreme Court.

In 2014, the New York Supreme Court held that the CGL insurer was only required to indemnify Sony for a loss that had been occasioned by "some kind of act or conduct by the policy holder". The court went on to say that the theft of the data by a third party, being the hackers, was not an "act or conduct" by Sony and, therefore, did not fall within the scope of the policy. Sony was denied cover. Sony has since appealed this decision, which remains pending.

Sony Pictures hack may be covered by cybersecurity policy

In contrast, there was a far more pleasing outcome for Sony in respect of the November 2014 information breach. After the 2011 incident, Sony is reported to have taken out a dedicated cybersecurity policy. It is understood that the cybersecurity policy will respond to the loss and Sony will suffer minimal, if any, financial loss.

Sony's experience provides a very strong example of the difficulties a company can face if it seeks to rely on a corporate general liability policy for information breaches. An appropriate cybersecurity policy will provide peace of mind and ensure that a company is not exposed to an unexpected economic risk.

No company is immune from information breaches

The Sony Pictures cyber attack should serve as a reminder that even the most sophisticated companies and computer systems are not immune from information breaches - just as the best alarm system will not always provide immunity to burglary, even the best information systems are not failsafe.

Despite media attention concerning information breaches at large corporations, it is a misconception that small to medium enterprises (SMEs) are not at equal risk of information breaches. A large number of cyber attacks are targeted at SMEs as they may be perceived as an easy target with vulnerable security systems by the opportunistic cybercriminal.

There are numerous external and internal risks for small businesses that may lead to data breaches. (See our July 2014 article entitled Computer hacking and data breaches: risks for small businesses.) The reality is that most SMEs have neither the resources nor the expertise to identify and respond to potential information breaches. This risk can be offset by appropriate insurance.

Understand your risk and determine whether you need cybersecurity insurance

The decision to take out a dedicated cybersecurity policy will depend on a company's risk profile and existing forms of insurance. This is something your broker or insurer should be able to assist you with. Your insurer may even assist you in identifying and minimising risks.

Some useful questions to ask yourself are:

  • How reliant is your business on computer systems? What would the cost of a computer outage be and how quickly would that cost materialise?
  • How is your data sent, stored and used? Can the data be accessed by third parties, stolen or lost?
  • How sensitive is the data held? E.g. Are you a healthcare provider who holds Medicare, health insurance and sensitive personal information about your clients?
  • What would the reputational cost be to your business in the event of an information breach?

Insurance is not a substitute for proper risk management

While insurance may transfer the economic risk of an information breach, insurance cannot be expected to substitute adequate protection measures.

Given the increased risk profile and large potential losses associated with cyber attacks, insurers are continuously revising their underwriting processes and policy terms. When considering what cover will be offered, the insurer will take into account your company's information security processes.

It is important to ensure that your information security policies are up to date and applied in practice. If you do not have adequate information security measures in place, insurers may decline to provide you with insurance, place exclusions, terms, conditions and limits on cover, or apply a higher premium or deductible to the policy.

Check the exclusions, terms, conditions and limits of your policy

Cybersecurity is still a relatively new form of insurance and policies vary widely. It is possible that a cybersecurity policy may overlap with some aspects of your existing general insurance policies.

Prior to purchasing a cybersecurity policy, discuss your existing and required insurance arrangements with your broker or insurer. It may be possible to integrate all of your insurance requirements, including cybersecurity, into a single umbrella policy. Alternatively, a standalone cybersecurity policy may present better value.

As with all insurance policies, it is important to look beyond the premium and determine what cover is actually provided. Be sure to carefully review the exclusions, terms, conditions and limits of the policy to ensure that it will respond if a risk materialises.

Craig Holland Kemsley Brennan
Information and communications technology
CBP Lawyers

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Craig Holland
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions