United States: 2016: The Year Of Cyber Insurance?

Last Updated: July 19 2016
Article by Carl E. Metzger and David S. Kantrowitz

It has been said that there are two types of companies in the world – those that have been hacked, and those that do not yet know they have been hacked. While perhaps an overstatement, it seems that every day, another company (sometimes public, sometimes private) announces that it has been the victim of a data breach. And given the fast-changing nature of cyber threats, even the best information security practices are not foolproof. As a result, sound corporate management means thinking about not just how to prevent a cyber-attack, but how to respond in the event one does occur. Cyber insurance is one tool available to companies to manage and respond to that risk. The cyber insurance market is expanding, and rapidly. According to the Insurance Information Institute, there are now 60 different insurance carriers that offer stand-alone cyber insurance policies, and a leading insurance broker expects the market, estimated to be worth over $2 billion in gross premium in 2014, could increase nearly fourfold by 2020.

Yet with growth has come uncertainty in the marketplace about the coverage itself – about what it does and does not cover, and about whether it is really necessary. Bottom line, any company without cyber insurance needs to start thinking about it; as it becomes more widely adopted, the marketplace, shareholders, regulators and other corporate stakeholders will begin to view it as necessary rather than optional.

What follows are key issues every company should think about when deciding whether cyber insurance is right for them.

Evaluate Your Risk

If your company maintains nonpublic data, you are at risk. Historically, the biggest target for cyber-intruders has been financial information such as credit card data and bank account numbers. Although that information still has value to cyber criminals, these days more sophisticated attacks have targeted other personal information, such as protected health information and other personal information that is not as easily replaceable, including social security numbers and tax identification numbers. 2014 has been called the "Year of the Data Breach," but 2015 has been called the "Year the Data Breach Got Personal." Indeed, according to the Identity Theft Resource Center, 2015 saw a large spike in the number of social security numbers exposed, along with a corresponding drop in number of compromised debit and credit card numbers.

In addition to the type of data your company holds, the amount of data is crucial to assessing your risk. The amount of personal information a company holds can vary dramatically. Some companies maintain personal information on a large customer base, whereas others maintain such information only on employees. And companies that store large amounts of protected health information are in many ways at an even higher risk given the regulations that govern such data and the resulting scrutiny that often accompanies health care breaches. Taking stock of what is at stake is the first step in determining the scope and extent of the necessary coverages.

Review Your Existing Coverages

After determining your risk, you should evaluate the insurance you already have to see if you have any coverage for cyber events. Although your existing policies likely will not cover everything that a stand-alone cyber policy would, there may be some existing coverages you should take into account when selecting a cyber policy. For example, an existing directors & officers (D&O) policy, while not covering direct losses for cyber-attacks, may provide some measure of coverage to directors and officers against claims that they failed to take adequate steps to protect against a security breach. Similarly, some errors and omissions (E&O) policies have cyber modules that attach and may provide similar coverage to stand-alone cyber policies. Finally, most cyber losses do not fit neatly within the framework of a general liability policy, and even where they might, it is very common for general liability coverages to exclude cyber-related loss such as losses of data and information. Still, general liability coverages should be reviewed for possible elements of cyber coverage that may be available.

Work with a Broker with Real Cyber Expertise

In the insurance world, cyber coverage is a relatively recent invention. While products such as general liability, E&O and D&O coverage go back decades (or even centuries), cyber insurance only started to mature in earnest in the 2000s, and even then, was only used in any real sense over the past 10 years. As a result, there is little uniformity among the policies and rates can vary markedly. Thus, when shopping for a cyber policy, it is in your best interest to work with an insurance broker with real cyber experience, not just a broker who places a handful of such policies per year. Ask how many the broker has placed recently. Because so much is open to negotiation, working with an experienced broker will put you in the best position to get the most favorable policy language you can.

Use Outside Counsel to Evaluate Your Coverage Options

While an experienced broker is a necessary first step in obtaining good coverage, it often isn't enough. Because cyber insurance is a relatively new product, the policy language is highly variable and not yet universally understood. Likewise, case law interpreting the policies is still immature, making careful review of the policy language even more important. For this reason it is wise to retain experienced counsel to review the policy in conjunction with your broker.

Not All Policies Are Created Equal

In general, a stand-alone cyber policy covers a variety of losses, from first-party expenses (meaning costs incurred by the insured, such as forensic investigation costs, the cost to repair or replace data and the cost to notify affected individuals, if required by law), to third-party loss (meaning defense costs and amounts paid to others, such as liability incurred in a lawsuit or penalties imposed by government agencies). Policies can and do vary within this framework, though. For example, many policies do not cover physical damage to computer hardware resulting from the breach. Others have broadly worded exclusions for acts of terror, which could operate to disclaim coverage for losses caused by state-sponsored hacking. And some policies have broad exclusions that deny coverage when certain data security practices are not in place.

Another key policy provision is the retroactive date provided for by the policy. A "retroactive date" is, in essence, an exclusion under the policy that disclaims coverage for claims or loss in connection with breaches that occur prior to the policy's retroactive date. Yet, it is common for companies to not discover a cyber intrusion until long after it occurs. If the retroactive date is relatively recent in time (perhaps even the date of policy inception), there is a risk that you will be without coverage for earlier-occurring breaches. You will want to evaluate retroactive coverage options to make sure you are fully protected for undiscovered breaches occurring earlier in time.

These common exclusions reinforce the importance of working with experienced brokers and counsel to get the policy that is right for your company's risk profile. Where exclusions cannot be negotiated out, experienced counsel can help manage expectations with senior management as to what a cyber policy will and will not cover in the event of a privacy or security incident.

Consider the Mechanisms of Filing a Claim

Although one hopes never to have to file a claim, it's never too early to start thinking about ways to protect yourself if you do. Think about the claim retention or deductible level you're comfortable with. Also think about whether you have preferred outside counsel you want to work with if a privacy or security incident occurs. In the event of a breach or lawsuit, many cyber carriers will require you to use their panel counsel, or offer to pay only a portion of the rates for the law firm you would prefer to use. These negotiations are especially fraught in the context of an active breach situation, when you will be at your most vulnerable and with the least leverage. You may have better luck negotiating for your counsel of choice in the first instance, before you are committed to a carrier.

A Final Note

With the increasing sophistication of cyber-attacks and the frequency with which they occur, it is no longer a badge of shame to fall victim. Many of your company's counterparties, clients and customers have been victims themselves, and can be sympathetic to a report of a breach. But what your business partners will not take in stride is a poorly-managed response. Although cyber coverage by itself is not enough to ensure a pitch-perfect response, it can provide you with the financial resources that, when coupled with a thoughtful and diligent response plan, can go a long way towards mitigating exposure in the event of a breach.

Goodwin Procter LLP is one of the nation's leading law firms, with a team of 700 attorneys and offices in Boston, Los Angeles, New York, San Diego, San Francisco and Washington, D.C. The firm combines in-depth legal knowledge with practical business experience to deliver innovative solutions to complex legal problems. We provide litigation, corporate law and real estate services to clients ranging from start-up companies to Fortune 500 multinationals, with a focus on matters involving private equity, technology companies, real estate capital markets, financial services, intellectual property and products liability.

This article, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin Procter LLP or its attorneys. © 2013 Goodwin Procter LLP. All rights reserved.

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.

Similar Articles
Relevancy Powered by MondaqAI
Miller Friel
Smith Gambrell & Russell LLP
Miller Friel
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Miller Friel
Smith Gambrell & Russell LLP
Miller Friel
Related Articles
Related Video
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
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.


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.


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