United States: Cyberinsurance: Buyer Beware: 10 Tips For Upping Recovery Odds From Cyber And D&O Policies

Originally published by Metropolitan Corporate Counsel, July/August 2015

While the risks posed by data breaches are by now widely recognized, effective management of the risk is lagging. Statistics indicate that concern about data breaches is up, yet half of all businesses have no plans to dedicate more resources to avert these perils. The purchase of dedicated cyberinsurance products appears to be on the rise, but many in the insurance brokerage community indicate that the marketplace is not yet as robust as one would expect given the staggering scope of recent data breaches and the ensuing headlines.

Figuring out what kind of insurance is needed to respond effectively to cyberclaims is challenging. Recent history teaches that the losses occasioned by cybersecurity breaches are not always predictable. The Sony Pictures breach is a prime example, as it imperiled or implicated in one fell swoop proprietary and intellectual property, employee personal information, sensitive management communications, reputation/goodwill, extortion, threats of bodily injury and business income. Now that hackers are extending the playing field of targeted data beyond the familiar categories of customer credit card numbers, addresses and health-related data, risk managers need to re-prioritize certain protections (including insurance protection) that used to be lower down on the shopping list.

Further widening the scope of cyberclaims, D&O insurance came into the picture last year after data breaches spurred derivative lawsuits against company officers and directors. While cyberinsurance products are finally registering on the radar of senior corporate executives, D&O insurance policies remain nearest and dearest to directors' and officers' hearts. It is therefore essential that D&O insurance respond to suits targeting company managers and directors that have their genesis in data breaches.

Purchasing adequate insurance coverage for technology-related insurance claims is challenging, as products lack uniformity and the claims history is thin. Following the tips below will improve the chances of recovery from stand-alone cyber and D&O insurance policies.

1 Pursue Clarity: Buy an insurance policy that you can actually understand. Unfortunately, many stand-alone cyberinsurance policies are virtually incomprehensible. Since there is not a lot of uniformity of product right now in the marketplace, many policies are confusing and densely written, making it hard to determine the scope of actual protection provided. Comparison shop with a good insurance broker  at your side to help you find the best forms. Once you have a good, comprehensible form to work with, the insurance company will often endorse it to provide protection that is better tailored to your needs if you know what to ask for.

2 Cover the Evolving Risk: Continuously monitor trends in computer hacks and data breaches. Remember that data breaches can still occur the old-fashioned way, through theft of sensitive hard-copy documents, as well as in cutting-edge ways not currently imagined. Your insurance policy needs to match the underlying exposure.

3 Cover Time-Element Losses: Business income coverage and reputational damage coverage take on added importance in the wake of recent hacking events. While a slew of insurance companies have offered cybercoverage for business income losses and reputational damage for several years, that coverage was not nearly as coveted as class action privacy litigation coverage, breach notification costs or regulatory proceedings coverage. Now, the reality that a breach can imperil the very core of the policyholder's ability to continue business operations takes on much greater import for risk management objectives. As such, consider insurance coverage that pays time-element claims resulting from reputational damage and business interruptions, including ones that partially interfere with business income.

4 Seek Retroactive Dates: Push for retroactive coverage whenever possible. Many insurance companies want to provide insurance protection only from the date that the first policy they sold you incepts. The problem is that some cyberthreats occur well before the policyholder actually learns of them. Computer forensic specialists will tell you that computer hackers can intrude into a computer system weeks, months and even years before the policyholder becomes aware of the threat. If you purchase insurance coverage with a retroactive date that pre-dates the policy period, your cyberinsurance company may ask you to provide a warranty letter. If you provide one, make sure it is carefully written and ensure that you do your due diligence in reaching out to other departments and employees within the company to ensure that your representations are fair.

5 Avoid Breach of Contract and Warranty Exclusions: Resist efforts to include breach of contract exclusions in your coverage. These provisions should be obsolete in an era in which so many policyholders do business pursuant to a contract (whether with customers, credit card companies, financial institutions, etc.). These exclusions are used all the time by some insurance companies to challenge insurance claims. While some recent court decisions have curtailed this use, it is best not to have the fight in the first place.

6 Avoid Cybersecurity Reasonableness Clauses: Resist insurance company efforts to include exclusions, warranties, representations or "conditions" in insurance policies concerning the soundness or reasonableness of the policyholder's data security efforts/protocol. These clauses are a recipe for disputes on potentially every security incident. Given the pace of technological innovation, almost every security step can be second-guessed with the benefit of 20-20 hindsight. Is it safe to log onto a secure network from your luxury hotel room using the hotel's wifi? The answer depends upon many factors that are difficult to pinpoint, including the exact point in time in which attitudes collectively begin to change. Such a question is bound to end in dispute if the cyberclaim is big enough.

7 Preserve D&O Insurance Coverage for Cyberclaims: Keep your directors and officers (D&O) insurance program (primary, excess, Side A, etc.) clean from any cyber-related exclusions or sublimits. Management will be highly concerned with any argued "gap" in coverage should a cyberevent ensue and D&O coverage be contested on the basis of an exclusion or limitation for suits where cyber may be the underlying cause or context of the claim.

8 Be Thorough When Filling Out Cyberinsurance Policy and D&O Policy Applications: Complete insurance applications carefully and gather information from other business units where necessary when answering questions. Even if an insurance company must pay a claim under the plain terms of the insurance policy, coverage may still be contested, under certain circumstances, on grounds that application questions were not correctly answered. Do not give the insurance company this opportunity.

9 Remember That Cyberbreaches Happen Off-line Too: Make sure your cyberspecific coverage protects losses involving mobile devices, home offices, data that is off-line at the time security is breached and devices that may not be owned by the policyholder. A lost flash drive containing gigabytes of information can lead to a breach and possibly an expensive one. Make sure your insurance coverage is available for such a scenario – even where the device is not actively connected to a network when the data breach occurs.

10 Cover Cloud and Third-Party Vendors: Make sure that your cyber-specific coverage protects against losses where others manage, transmit or host data for your company. Insurance coverage is available for cloud computing and instances where data is handled, managed or outsourced to a third party. Going back to point number one above, however, not all insurance policies are created equal, and there are cyberinsurance forms that on their face appear not to provide express protection for cloud-like scenarios. Most of these policies can be modified to extend such protection – if requested.

A static assessment of data security risk management will not work in most instances, given the rapid pace of change in this area. Be vigilant and adaptable in managing the security risk. Work with your colleagues in other departments to reduce risk where you can – and secure the best insurance your company can afford to protect against losses stemming from cyber-related perils.

David Wood  Co-managing shareholder in the Ventura, California offi ce of Anderson Kill and is deputy chair of the fi rm's Cyber Insurance Recovery Group. dwood@andersonkill.com

Joshua Gold Shareholder in the New York offi ce of Anderson Kill and chair of the fi rm's Cyber Insurance Recovery Group. jgold@andersonkill.com

About Anderson Kill

Anderson Kill practices law in the areas of Insurance Recovery, Commercial Litigation, Environmental Law, Estate, Trusts and Tax Services, Corporate and Securities, Antitrust, Banking and Lending, Bankruptcy and Restructuring, Real Estate and Construction, Foreign Investment Recovery, Public Law, Government Affairs, Employment and Labor Law, Captive Insurance, Intellectual Property, Corporate Tax, Hospitality, and Health Reform. Recognized nationwide by Chambers USA for Client Service and Commercial Awareness, and best-known for its work in insurance recovery, the firm represents policyholders only in insurance coverage disputes - with no ties to insurance companies and has no conflicts of interest. Clients include Fortune 1000 companies, small and medium-sized businesses, governmental entities, and nonprofits as well as personal estates. Based in New York City, the firm also has offices in Ventura, CA, Philadelphia, PA, Stamford, CT, Washington, DC, Newark, NJ and Dallas, TX.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
Miller Friel
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Miller Friel
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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