Cyber-insurance: Mitigating the dreaded Friday night phone call - In order to maximize coverage, companies need to make a claim within the time limits required and respond to the breach consistent with the requirements of their insurance policies.

by Gilbert LLP

Every in-house counsel dreads the telephone call on a Friday evening that starts with the words “I’m glad I found you.” That’s especially true if that telephone call informs the in-house counsel about the newly terminated IT department employee who was able to access the company’s confidential data systems 30 minutes before his access was deactivated. At that point, in-house counsel knows she is in for a long weekend and weeks or months of investigation, mitigation and possibly recriminations. Of course, there are two more questions that may be forgotten in this moment of crisis but will be asked soon enough: “How much will the investigation and remediation cost?” and “Who pays?”

Add to our example an additional twist: Our in-house counsel breathes a sigh of relief when she is told that the company’s security team has determined that the ex-employee introduced a virus that was intended to damage the company’s systems but that it failed to do any damage. Problem solved, correct? Unfortunately, even if there is no damage, the company could still incur significant costs as a result of the breach. In most circumstances, IT security departments will require a review of all of the major systems to confirm that the virus did not in fact infiltrate any systems and cause latent damage or a cybersecurity breach. Such an investigation can be extremely costly. At least one study has determined that the average cost to resolve an actual or potential cyber-attack is approximately $600,000. These costs can include forensic and investigative activities, assessment and audit services, crisis team management, and communications internally to executive management and board of directors and possibly externally to shareholders or the public.  

While in-house counsel and the company’s IT security team are dealing with the immediate impact of a breach and beginning to plan for the longer-term response, a key aspect that should be at the top of the “to-do” list is to contact the company’s internal and external insurance coverage counsel and representatives. In order to maximize coverage, companies need to make sure that not only have they made a claim within the time limits required, but also that they are responding to the breach consistent with the requirements of their insurance policies.

Most companies typically have traditional insurance policies that may cover cyber risks, including commercial general liability (CGL) coverage. CGL policies generally cover the company against liability for claims alleging “bodily injury” and/or “property damage” and also against liability for claims alleging “personal injury” and/or “advertising liability.” Insurers typically argue that “cyber” risks are not intended to be covered under CGL policies, but insureds have had some success in pursuing coverage for cyber risks. Insurers have begun to constrict CGL policy language in an effort to preclude coverage for losses arising from data breaches. In order to specifically cover the risks associated with cyber breaches, and to protect the company’s balance sheet, companies are looking toward cybersecurity insurance.

Insurance companies are currently offering cybersecurity insurance policies that protect businesses from Internet-based risks, and more generally from risk relating to information technology infrastructure and activities. While cyber-insurance coverage is relatively new to the market, the types of coverage are typically divided between first-party coverage, which protects the policyholder itself, and third-party coverage, which protects against the claims of a third party against the policyholder. First-party cybersecurity policies may provide coverage for:

  1. The costs associated with determining the scope of the breach and taking steps to stop the breach;
  2. The costs of providing notice to individuals whose identifying information was compromised;
  3. Public relations services to counteract the negative publicity that can be associated with a data investigation;
  4. The costs of responding to government investigations;
  5. The costs of replacing damaged hardware or software;
  6. The costs of responding to parties vandalizing the company’s electronic data; and
  7. Business interruption costs.

Third-party cybersecurity policies may provide coverage for:

  1. Liability for permitting access to identifying information of customers;
  2. Transmitting a computer virus or malware to a third-party customer or business partner;
  3. Failing to notify a third party of their rights under the relevant regulations in the event of a security breach; and
  4. Potential “advertising injury,” i.e., harms through the use of electronic media, such as unauthorized use or infringement of copyrighted material, as well as libel, slander, and defamation claims.

There is also specific cyber-insurance for privacy breach incidents. This insurance could pay for the immediate response to the breach to stop the damage, reimburse the costs of replacement of hardware or software, and the costs to investigate the scope of the breach. This insurance could also pay for the costs of providing notice to people whose information was disclosed, and may even have preferred companies that it favors for providing that notice. Business interruption costs may also be covered, as well as reimbursement for the costs of responding to investigations or work to counteract negative publicity.

While our in-house counsel probably can’t save her Friday night plans, proper planning on the part of the company can reduce the monetary harm and other risks of actual or even potential cybersecurity breaches. Companies should seriously consider purchasing cybersecurity insurance and, in so doing should consider first and third-party coverage, data restoration costs and coverage for regulatory actions.

Written by:

Gilbert LLP

Gilbert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.