New Trends To Watch In Cyber Risk Insurance

by Zelle LLP
Contact

Insurance Law360 - August 6, 2013

Although specific cyber risk insurance policies are becoming increasingly common, claims related to data breaches continue to be submitted under commercial general liability policies. Some recent decisions addressing these claims provide helpful guidance for practitioners in this area.

It is well known that over the last few years, there has been a significant increase of data breaches, that is, incidents compromising the security of data stored electronically by an organization. This has been accompanied by the development and growth of specialty cyber insurance products specifically designed to address these, and other, cyber-related risks confronting businesses today.

Notwithstanding the expansion of cyber risk insurance, policyholders continue to submit claims arising out of data breaches under their traditional CGL policies. This is due to a variety of reasons, including that the agreed-upon limits of liability under the insured’s cyber risk policy turn out to be insufficient to cover the losses resulting from the data breach; an exclusion or other provision precludes or limits coverage for the particular claim; or the company simply did not purchase cyber liability coverage.

Therefore, CGL policies continue to play a significant role in ascertaining the scope of coverage available for third-party claims arising out of data breaches. Indeed, some recent, high-profile coverage disputes in this area have involved claims brought by large corporate policyholders seeking coverage under the “personal and advertising injury” provisions of their CGL policies for the class action and other claims brought against them after computer hackers stole their customers’ personal information.

In analyzing the legal issues involved in these types of claims, several recent court decisions involving claims brought under a CGL policy for the insured’s alleged liability for the loss or misappropriation of the claimant’s electronic data may be relevant to practitioners as this is often the basis of at least some of the claims asserted against companies affected by a data breach.

A critical issue in these cases is whether the third-party claims against the insured involve physical injury to, or loss of use of, “tangible property” so as to trigger coverage under the “property damage” section of the CGL policy. Several recent decisions have concluded that electronic data, such as a third party’s customers’ email addresses, employees’ personal information and even electronic funds in a bank account, do not constitute tangible property and therefore fall outside the scope of this coverage grant.[1] Some of the CGL policies at issue in these decisions expressly excluded electronic data from the definition of “property damage.”

However, in contrast, another court held that where the loss alleged in the underlying lawsuit involves the medium on which data was stored (in that case, a CD-ROM containing third parties’ personal information), there is a potentially covered claim for “property damage” under a CGL policy.[2]

It should be noted that even if the coverage for “property damage” is potentially triggered, other provisions in the policy may apply to limit or preclude coverage. Indeed, in this same case, the Seventh Circuit affirmed summary judgment for the insurer on the ground that the exclusion for property “in care of” the insured applied to the insured’s loss of the CD-ROM, thus barring any recovery under the insured’s CGL policy.[3]

Policyholders may also seek coverage for data-breach losses under the “personal or advertising injury” coverage parts of standard CGL policies. With respect to a claim against an insured for loss or disclosure of third parties’ personal information, the relevant insuring clause is the coverage grant for alleged injuries arising out of the “publication of material that violates a person’s right of privacy.”

Coverage for such claims may depend on the interpretation given to the term “publication” in the relevant jurisdiction. As recent decisions show, in some states, a “publication” requires dissemination of the personal information to the general public,[4] and in others, there must be a communication to a third party.[5]

Other courts, however, have taken a more expansive view of the term “publication.” The choice-of-law issue may thus be outcome-determinative in these types of claims.

Case law involving liability insurance coverage for claims arising out of electronic data breaches continues to develop. The decisions mentioned in this article signal some important issues and trends, which practitioners in this area need to consider when analyzing these types of claims.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See Liberty Corporate Capital Ltd. v. Security Safe Outlet Inc. (E.D. Ky. Mar. 27, 2013); Recall Total Info. Mgmt., Inc. v. Federal Ins. Co. (Conn. Super. Ct. Jan. 17, 2012); Carlon Co. v. Delaget, LLC (W.D. Wis. May 21, 2012).

[2] Nationwide Ins. Co. v. Hentz (S.D. Ill. Mar. 6, 2012).

[3] Nationwide Ins. Co. v. Central Laborers’ Pension Fund, 704 F.3d 522, 525-26 (7th Cir. 2013).

[4] Creative Hospitality Ventures, Inc. v. U.S. Liab. Ins. Co., 444 Fed.Appx. 370, 375-76 (11th Cir. 2011) (applying Florida law).

[5] Recall Total, 2012 WL 469988 at *6-7.

 

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.

© Zelle LLP | Attorney Advertising

Written by:

Zelle  LLP
Contact
more
less

Zelle 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):
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!