Businesses Should Consider a Separate Policy to Protect against Data Breach Liability

Risks like property damage from tropical storms and liability claims arising from lawsuits for injuries caused by the products of a company are hazards that may seem obvious when purchasing a commercial insurance policy.  However, there are many potential causes of loss that can threaten the financial viability of a business that are not quite so apparent.  Further, changes in the industry in which a business operates, evolving technological innovations and many other circumstances can create new perils with the potential to cause devastating financial harm to a business.  Data breach incidents constitute a rising threat relevant to virtually all businesses, and these forms of lost or pilfered data can expose a company to potentially ruinous financial losses.

Although breaches in cybersecurity are occurring at an increasing rate, this is a risk that many companies do not give a lot of consideration to when purchasing liability coverage.  This general indifference can become an enormous fiscal miscalculation if the confidential payment information of an entire customer base is stolen by hackers.  Examples of the scope and magnitude of this threat are provided by recent data breach lawsuits filed against companies like Anthem and Target.  Target ultimately paid $10 million to settle their data breach lawsuit.

Another reason Florida business owners might want to pay more attention to cyber security issues involves recent changes in standard commercial general liability policies.  The Insurance Services Office, Inc. began requiring a new endorsement that excludes data breach liability as of May 1, 2014.  The endorsement is labeled “Exclusion-Access or Disclosure of Confidential or Personal Information and Data-related liability-with limited bodily injury exception.”  What does this change mean for business owners?  Standard commercial general liability policies will no longer provide protection for data breaches that result in disclosure or theft of confidential and personal information of customers, suppliers and others.

The proprietary data of businesses and their customers has become increasingly vulnerable given the reliance of businesses on the Internet.  As technology and innovation lead to businesses being increasingly built around electronic data systems, companies now depend on servers and computers to safeguard sensitive information like client lists, client orders, patient medical records and confidential billing and/or payment information.  Because of the potential financial loss associated with the loss of data regarding clients, the general exclusion of data breach coverage means that companies should consider the likelihood of a security breach in the context of the relative cost to determine whether to purchase additional coverage.

Cyber liability policies can protect a company from liability claims in the form of costs of suit and judgements or settlements arising out of a lawsuit following a data breach.  Data breach coverage also can address measures like remediation of computer systems, investigation expenses, data fixes and informing clients.  When conducting a risk-benefit analysis to determine whether such coverage is warranted, the enormous expense associated with computer forensic investigations and steps to rehabilitate a company’s public perception also should be considered.

While all commercial insurance policies often contain stilted language and ambiguous provisions, commercial cyber coverage policies can be even more confounding because the policies are relatively new.  The language associated with new types of coverage that is created in response to changes in technology will not have been subject to much litigation construing the terms and conditions of the policies.  Given these challenges in interpreting this form of commercial insurance policy, you should consult with an experienced Florida insurance claims professional.

If you have questions about commercial insurance coverage or claims, my Miami business insurance claims law firm might be able to help.  My law firm represents policyholders in claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM. 

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