The Inevitable Cyber Break In: Are You Protected?

by Nossaman LLP
Contact

The prevalence of cyber data breach over the years has not only grown in number, but has also grown in size.  Perhaps the most well-known example of a large-scale data breach is that suffered by Target Corp. occurring at the end of 2013.  The effects of the breach on Target Corp. have been profound. Indeed, within days of the announcement of the breach, class action lawsuits were filed against Target around the country, including in California, Massachusetts, Minnesota, Ohio, and Utah. These class actions fall into three general categories: (1) those brought by consumers whose information was compromised; (2) those brought by financial institutions such as banks and credit unions that service these consumers; and (3) derivative actions brought by Target shareholders.

For a single data breach, the Ponemon Institute reports that the average U.S. organizational cost is $5,403,644 — with $565,020 spent on post-breach notification alone.[1] Importantly, the numbers do not include “data breaches in excess of 100,000 [records] because they … would skew the results.”

There is potential coverage for cybersecurity data breaches under standard CGL policies. In particular, the ISO’s form CGL policy states that the insurer “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertising injury.’”[2]  “Personal and advertising injury” is defined to include “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.”[3]

But just when insureds need coverage for damages caused by cyber data breaches the most, the Insurance Services Office Inc. (“ISO”), which sets guidelines for pricing and creates insurance forms for insurers to use across the country, has come up with a number of data breach exclusionary endorsements or standard exclusions for use with its standard-form primary, excess and umbrella commercial general liability (“CGL”) policies to lock out any potential coverage.  For example, the ISO filed endorsement form number CG 21 06 05 14 entitled, “Exclusion – Access Or Disclosure Of Confidential Or Personal Information And Data-related Liability – With Limited Body Injury Exception,” which modifies the CGL coverage part.  This endorsement excludes coverage for damages arising out of:

(1) Any access to or disclosure of any person’s or organization’s confidential or personal information, including patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other type of nonpublic information; or

(2) The loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.

The endorsement goes one step further and clarifies that:

This exclusion applies even if damages are claimed for notification costs, credit monitoring expenses, forensic expenses, public relations expenses or any other loss, cost or expense incurred by you or others arising out of that which is described in Paragraph (1) or (2) above.

Naturally the insurers snapped up these exclusions, incorporated them into their policy forms and submitted them for approval to the state insurance departments where they do business. The majority if not all U.S. states and territories have approved these new exclusions.  It is not surprising that the insurance industry has promulgated these new air-tight exclusions for cyber related losses while also at the same time they have begun to roll out in earnest specialized cybersecurity insurance products to fill the gap they are creating. The cybersecurity insurance products available are both pricy and limited.

With ISO’s new data breach exclusions rolling out, organizations should assess potential threats to its company and private customer information, and identify which insurance products will best fit their needs including, careful review of their insurance and at renewal negotiation of the broadest possible coverage including wherever possible, older versions of the ISO CGL forms, and no special endorsements reducing coverage even more.  If data breach is a serious concern, and any company of any size should be concerned, perhaps careful consideration of cyber insurance is in order, as limited and expensive as it may be.

[1] Ponemon Institute, 2013 Cost of Data Breach Study: Global Analysis, at 5, 16 (May 2013).

[2] ISO Form CG 00 01 04 13 (2012), Section I, Coverage B, §1.a.

[3] Id. §14.e.

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.

© Nossaman LLP | Attorney Advertising

Written by:

Nossaman LLP
Contact
more
less

Nossaman 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.
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.