Many businesses remain hesitant to purchase cyber insurance policies. Studies show fewer than a third of businesses within the United States have specific coverage for their cyber risks. Yet losses resulting from those risks can easily reach catastrophic levels. This has left underinsured companies searching for unique recovery theories under their traditional insurance policies when suffering the types of losses that cyber insurance would cover.
Court Cases Argue If Data Qualify As Property
Property policies have seen an increase in this type of litigation in recent years. Similar to the way in which companies have tried to argue that certain types of data breaches are covered by commercial general liability policies, businesses have tried to argue that the loss of electronic data qualifies as a loss of property and if caused by a covered risk, should lead to payments from the insurance company issuing their commercial property policy. This argument has met with varying degrees of success and rests upon a number of complicated determinations.
Tangible Items Are Creating And Hosting Data
Commercial property policies only cover direct physical loss to tangible property. Litigation of data loss claims under property policies often focus on how the terms physical loss and tangible property relate to electronic information. Some cases have focused on whether the actual storage equipment, whether a computer, a server, or some other external device, suffered physical damage to determine whether the insurance company would have to compensate a company from the resulting data loss. Other cases have held that the altering of data within the computer itself constitutes physical damage.
Covered Perils
At the same time, commercial property policies do not generally cover losses caused by many of the factors that lead to the loss of electronic data. These may include adverse temperature conditions, power surges, or mechanical failures. Even if a court were to determine data loss constituted a direct physical loss to tangible property in the case of a specific business, the insurance company will only have to indemnify the business for resulting losses if a covered peril caused the loss.
...But There May Be Covered Perils For Data Loss
The insurance industry has moved to address these issues by creating specific language within the standard property form to address electronic data loss. Standard forms now exclude electronic data loss from most property coverage or institute specific coverage for data loss at significantly lower limits than found for other property covered by the policy. These limits often fall far below the actual value of the electronic data to the company losing it. At the same time, cyber insurance policies often include specific coverage for electronic data loss and expand the number of covered perils.
Coverage Still Varies
Charlie E. Bernier Principal Consultant and Cyber Insurance Expert at ECBM says, "Companies will have to review their policies and their coverages to determine which coverage option best protects them from losses due to electronic data failures. They will also need to take stock of the actual value of the data to the company to ensure full and appropriate coverage." Speaking to a trained broker can help navigate these complex questions and keep your business running in the face of potentially huge losses.
