Does your CGL Policy Include Cybersecurity Coverage?

by Smith Anderson
Contact

As implied by the name, the commercial general liability (CGL) insurance policy provides businesses with coverage for a wide array of claims by third parties, including claims for damage to “tangible property” and claims arising out of a “publication … of material that violates a person’s right of privacy.” CGL coverage, however, is limited by a number of standard exclusion provisions that eliminate coverage for certain types of claims, such as some contract-based claims and damages caused by pollution.

Now, companies can expect that claims based on data breach incidents uniformly will be denied under the new standard forms for CGL policies. This is because new forms for CGL policies issued by ISO—the Insurance Services Office, Inc. (an insurance industry organization that develops standard policy forms that are adopted by many insurance companies and often are approved by state insurance agencies)—expressly exclude coverage for these incidents.

Data breach incidents, like the one suffered by Target last year, have received much publicity in recent news and for good reason. Data breaches can involve tens of thousands, and sometimes millions, of affected records and people. The costs for such incidents are significant. A 2014 study reported that the average cost of a data breach to a company was $3.5 million.[1] Target has reported approximately $236 million in total costs thus far for its breach-related costs.

Companies that have turned to their CGL policies for coverage of their data breach claims usually are met with resistance by their insurers. Because many CGL policies were written before “cybersecurity” became common parlance, insurers argue that CGL policies were not intended to cover such claims. Disputes arise, for example, over whether electronic data is “tangible property” or whether there must be actual use or disclosure of stolen data to constitute a “publication” of material that violates privacy rights. Court decisions on these issues are not uniform and vary based on the specific facts and policies at issue. In some cases, companies have prevailed against their CGL insurers in coverage disputes arising out of data breaches.

Companies are unlikely to find similar success, however, under the new ISO forms for CGL policies. Depending on the specific ISO form used, companies should expect that future CGL policies will include provisions that exclude coverage, in whole or in part, for damages arising out of any “access to or disclosure of any person’s or organization’s confidential information, including patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other type of nonpublic information.” Coverage also may be excluded for damages arising out of the “loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.”[2] 

Although courts have not yet had the opportunity to interpret these provisions, insurers certainly will be much better positioned under these new forms to deny data breach claims.

Companies that have assumed that their CGL policies will insure against data breach incidents were already on shaky ground before the new ISO forms became effective. That assumption is even more tenuous under newer CGL policies. Thus, businesses should consider carefully whether an insurance policy designed specifically for data breach liabilities is needed to complete their risk management strategies. These specialty policies are rapidly developing as a niche market in response to denials of coverage under CGL policies, and the expansion of this specialty market should accelerate with the new ISO form CGL exclusions.

[1] See Ponemon Institute Releases 2014 Cost of Data Breach.

[2] See ISO forms CG 21 06 05 14, CG 21 07 05 14, and CG 21 08 05 14.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Smith Anderson | Attorney Advertising

Written by:

Smith Anderson
Contact
more
less

Smith Anderson 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):
hide

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.

Security

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 info@jdsupra.com. 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: info@jdsupra.com.

- 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.
Feedback? Tell us what you think of the new jdsupra.com!