As the number of attempted and successful cyberattacks increase, interest in cyber liability insurance increases as well. This is unsurprising. Cyber claims are increasing every year, and even one successful cyberattack could cause the exposure of millions of confidential records and concomitant dollar losses. Many of these cyber policies contain alternative dispute resolution provisions mandating that the parties participate in binding or nonbinding mediation and/or arbitration in place of, or prefatory to, litigation. So, the question should be asked: When it comes to cyber insurance claims, does ADR work? Should policyholders object to or fight the inclusion of ADR clauses in policies of insurance covering cyber risks?

Litigation over ADR clauses in cyber policies is already happening, as policyholders try to elide predispute ADR requirements contained in their cyber liability policies. Since such litigation may itself defeat the ADR goal of efficient resolution of the dispute, it is useful to step back and consider some of the basic policyholder objections to ADR provisions. In general, ADR features (1) confidentiality protections that screen out media coverage; (2) no trial by jury; and (3) restricted grounds for appeal. Though often objected to by cyber policyholders, these three factors may benefit them.

Originally published in Law360 on October 5, 2018.