October 21, 2011
Insurance, Intellectual Property, Internet & E-Commerce Alerts

Do You Need Cyber Insurance?
by Cyrus Wadia

You don’t need to be a Fortune 500 company to get hacked. And you don’t need to be a Fortune 500 company to be subject to the 46 state privacy and security breach notification laws that come into play when you get hacked. Cyber insurance policies can protect your company against lawsuits regarding data security breaches, lawsuits regarding loss of confidential data, and cover the costs of hardware repair and even lost business.

Consider this year's prolific case of cyber attacks against Sony Playstation Network.  After 23 days of service outage, the company allegedly incurred personal data exposure of millions of user accounts, a class action lawsuit, a federal investigation, and most recently its insurance carrier's filing of a declaratory judgment action denying liability coverage.
Businesses are often surprised that their commercial general liability policies do not necessarily cover claims for damages resulting from cyber security claims. Insurance carriers have rapidly jumped into the game by developing cyber insurance plans to protect businesses from computer network related losses, such as unauthorized access, data theft, computer viruses, denial of service attacks, and the resulting loss of business during the time it takes to recover from such attacks.

There are several types of coverage. Policies can cover first and third-party risks associated with Internet businesses from general Internet-related crime. Policies can protect your company against losses associated with the data security breaches and theft of personally identifying information by hackers or employees, whether that breach occurs directly or to one of your vendors in possession of that information. There is coverage for damages to hard assets (for example, computers, servers, etc.). There is traditional business interruption damage coverage, and coverage against reputational damages resulting from the immediate “crisis” caused by the breach or security attack, including costs associated with restoring your brand or reputation. Media liability insurance covers defamation, invasion of privacy, libel, slander, copyright and trademark infringement claims.And standard network security coverage can protect against denial of service attacks and computer viruses.

Best practices for IT security has evolved far beyond firewalls and antivirus software:  businesses should consider the emerging cyber insurance options in to minimize fallout from cyberattacks and maximize the ability to recover from data breaches. Insurance brokers or agents can assist you in determining what your company needs.

Back to Alerts