The Role of Commercial General Liability and Cyber Risk Insurance Policies in Mitigating Against the Risk of Data Privacy Breaches

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Originally published in Privacy & Security Law Report, 11 PVLR 1430, 09/24/2012.

Companies, organizations, and individuals throughout the world reap significant benefits of having access to the internet. Since the 1990s, the cyberworld has continued to develop and open up a plethora of new businesses and markets for consumer goods and services. The advent of these new opportunities has created new types of security risks that were not present before. While companies may have worried about security in the traditional brick-and-mortar sense, the internet gives criminals an entirely new way to commit fraud on a company and its customers. Cybercrime now ranks as one of the top four economic crimes in the world. One in ten companies that were the victim of cybercrime suffered losses in excess of $5 million for the incident. In 2010, computer hackers were able to access approximately 16 million confidential records through more than 662 security breaches.3 Sony Computer Networks is facing a series of class action lawsuits due to the breach of its PlayStation Network in which hackers were able to obtain personal information on more than 100 million subscribers.

The patchwork quilt of state and federal privacy laws creates additional sources of liability for businesses where a business may inadvertently disclose personal information of a consumer in violation of the law. Clearly, cybercrime, data security breaches, and privacy law violations pose significant risks to companies in terms of class action lawsuits, lost revenue, and loss of reputation.

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