Cyber Risks: Are You Protected?

by Sherman & Howard L.L.C.
Contact

As our reliance on technology grows, companies face increasing risk of exposure to cyber breaches.  The following outlines some of the risks your business faces and explains why you should implement strategies to manage your risk before a cyber breach occurs.

What Is Cyber Risk?
Cyber risks include any security incident in which information is released or accessed by unauthorized individuals.  Risks include both external cyber attacks, such as hacking or disclosure of information by third party vendors, and internal cyber breaches, such as accidental disclosure of sensitive information through improper disposal of old computers and equipment.

The Threat Is Real.
In the past year, targeted cyber attacks against small and medium businesses has nearly doubled:  from 18% in 2011 to 35% in 2012, according to a study released by the National Cyber Security Alliance and Symantec.  Recent studies report that 74% of small to medium businesses experience some type of electronic banking fraud.  Symantec reports that almost 40% of the over 1 billion cyber attacks it prevented in the first quarter of 2012 targeted companies with less than 500 employees.  Yet, 83% of U.S. businesses have no formal plan to address these threats, and nearly 6 out of 10 small to medium size businesses have no contingency plan for responding to and reporting data breach losses.[1]

The Costs Are Immense.
The costs stemming from cyber breaches can be devastating.  Chartis estimates that the average cost of a data breach is $14 Million per business.  Other estimates range from $5 to $214 per compromised record and in 2011, Ponemon estimated that data breaches cost companies an average of $5.5 Million per incident.  Costs include mandatory notification required in at least 47 states.  Each law differs in its requirements, timing, and the potential penalties for noncompliance, but if your company suffers a breach, you must comply with the laws of each state in which you have clients or customers.  Other costs of cyber breaches include reputational damage, lost business, loss of use of equipment, data or information, attorneys' fees and litigation costs, damage awards, fines, penalties and the costs of implementing regulatory requirements.

Managing Your Risk.
Managing your cyber risk includes implementing in-house procedures and safeguards to prevent cyber breaches and obtaining adequate insurance funds to respond to breaches that occur.  We will detail ten steps your company can take to manage your cyber risks in our next client advisory.

Standard Insurance Policies.
Insurance coverage may be in important source of funds to respond to cyber breaches.  While many companies look to their standard insurance policies, such as commercial general liability, directors & officers, or crime policies, to cover such events, it is unlikely these policies will cover all of your company's cyber risk.  For example, it is unlikely that any one of these policies will cover both third-party costs (including responding to litigation, damages awards and attorneys' fees), and first-party costs (including business interruption, notification costs and responding to regulatory requirements).  Moreover, traditional insurance carriers are aggressively denying coverage for such losses and increasingly adding cyber exclusions to standard form policies.  Even so, there is some favorable precedent for finding some coverage under certain policies.[2] Therefore, if your company suffers a cyber attack or cyber breach, it is important to consider potential coverage under each of your insurance policies.  Keep in mind that it may take more than one policy to fully cover the risks.  A qualified independent insurance broker or insurance coverage attorney can review these policies for possible coverage avenues.

Cyber Policies.
In response to increasing exposure for cyber liability, some insurers are offering, and many businesses are buying, specialized cyber policies to specifically address cyber risks.  These policies are specially designed to address cyber security and privacy issues.  The carriers who offer robust cyber coverage may also provide cyber risk assessment tools as a service to your company.  These policies vary in what coverage they afford and are largely untested in the courts.  When considering this option, it is important to know your risk and compare that to the coverage being offered.  When in doubt, consult with a qualified broker or coverage attorney to evaluate the potential pitfalls and benefits of a particular product.  In a future advisory we will offer suggestions on what to look for in a comprehensive cyber insurance policy.


[1]See, e.g., Small Firms Have False Sense of Cybersecurity, Ned Smith, http://www.businessnewsdaily.com/3273-small-businesses-cyber-security.html; Biz Report: October 24, 2012: 83% if SMBs Have No Formal Cyber Security Plan, Helen Leggatt, http://www.bizreport.com/2012/10/83-of-smbs-have-no-formal-cyber-security-plan.html.

[2] See, e.g., Retail Ventures, Inc. v. National Union Fire Insurance Company of Pittsburgh, 691 F.3d 821 (6th Cir. 2012).


Attorneys in the Sherman & Howard Insurance Recovery Practice Group are available to assist with these and other issues.

 

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.

© Sherman & Howard L.L.C. | Attorney Advertising

Written by:

Sherman & Howard L.L.C.
Contact
more
less

Sherman & Howard L.L.C. 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.
Custom Email Digest
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.