cyber attack magnifying glassWhile I wrote this article for a wine industry audience, the information in it is relevant to every company that is in any way connected to the internet. You should consider whether your insurance coverage adequately addresses your actual cyber risks today.

Cyber insurance can cover some of the more well-known risks, such as the costs to investigate and respond to the loss or theft of personally identifiable information. But cyber insurance won’t cover everything. It often will not cover bodily injury and property damage due to a cyber attack, which now is a real risk for certain companies whose critical infrastructure or products are internet-connected. Cyber insurance can provide business interruption coverage due to a cyber attack, but this coverage is often quite limited, though broader and better coverage is now starting to emerge in the market.

As a result, my article suggests that companies take a close look at what their real cyber risks are and then holistically review their insurance programs (not just the cyber policy, but also “traditional” policies such as property insurance) to ensure they are adequately protected.

Read the full article on fbm.com: Winery, Vineyard Cyber Attack Risk Grows With Web-Connected Systems

shutterstock_109214660-Cyber-Attack-BlogThe Internet of Things gives rise to many risks and exposures that companies and their insurers were not thinking about as recently as a couple years ago, and probably aren’t fully cognizant of today.

The DDoS attack late last week on internet infrastructure company Dyn should act as a wake-up call.  It shows how large and disruptive a cyber attack can become because of all the seemingly benign “things” connected to the internet.  And it should cause companies to think about what their risks really are and whether their current risk management approaches address them.

Just one example from this latest attack – I’m reading that one or more of the manufacturers of the devices that were used as bots in this attack must recall a very large number of products because the passwords (which were easily cracked) cannot be changed by the user.  The software that runs those products came ready installed on components bought from China, and it is this software that contains the vulnerability.  Now that the passwords are known, the devices can no longer be considered secure.  Maybe the manufacturers have product recall insurance or maybe they don’t.  But they likely never thought they would have to conduct a product recall under these circumstances and whether such a recall might be covered under their current insurance program.

Protect your company by:

  • Understanding your company’s IoT exposures.
  • Using your company’s broker and coverage counsel to review all insurance policies with IoT exposures in mind and negotiate favorable policy terms.
  • Revisiting the policies annually at renewal time because of quickly changing risks and policy terms.

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Policyholders should always consider the potential for coverage under their CGL policies if they suffer a data security breach. However, as the cases described in my article for Corporate Counsel, coverage is highly fact-dependent and subject to interpretation by the courts even in the absence of a data-related exclusion. The addition of such an exclusion narrows the policyholder’s options.

As a result, policyholders should carefully consider their insurance programs and the unique risks that their businesses face in light of their own computer systems, third-party computer systems on which they rely and the data they collect and/or hold. They should consider whether technology errors and omissions liability or cyberinsurance would more effectively address their risks. With the help of their insurance brokers and counsel, companies can negotiate and tailor those policies to their risks and exposures relating to computer systems, personally identifiable information and confidential third-party business information. Some businesses may choose to rely exclusively on their CGL policies for protection against data breach lawsuits. But that decision should be made deliberately after understanding all the risks and options.

Read the full article: Data Security Breach Liability: Is Your Business Covered?

Law firms are important gatekeepers between cybercriminals and clients’ sensitive data. The release of the Panama Papers and several other recent high-profile breaches have brought to light vulnerabilities in law firm cyber security.

I recently participated in a podcast with journalist Ben Hammersley and eSentire’s VP and industry security strategist Mark Sangster. Our discussion focused on cyber risks that law firms face and risk mitigation strategies to protect themselves and the data they hold, including cyber insurance.

Listen to the podcast here

In the December post Systemic Cyber Risks And The Internet of Things, we wrote about the increasing risk of cyber attacks on infrastructure and consumer products, and related insurance issues. We noted in that post that, while there have been a few cyber attacks on the Internet of Things (IoT) reported over the past few years, the number of such attacks was certain to grow. It has. Since our December post, several new attacks and developments have been publicly disclosed. These attacks again remind us that companies should evaluate their risks and exposures relating to the IoT and carefully negotiate their insurance policy renewals or purchases. Continue Reading Cyber Attacks on Infrastructure Are Increasing: Review Your Insurance As “Internet of Things” Risks Grow and Change

In the ACC Docket article, Cybersecurity and Data Breaches: How In-House Counsel Can Engage the Board, my fellow partner Carly Alameda and her co-author Olga Mack of ClearSlide correctly observe that cyber insurance may cover costs a company incurs as a result of a data security breach.

I’d emphasize that boards should carefully review proposed policies before they buy one to ensure that they obtain the desired coverage. Cyber insurance policies are not written on standard forms. Policy language and the scope of coverage offered by different insurers can vary, sometimes widely.

I’d suggest that boards first gain an understanding of their own risk profile and then seek to tailor the cyber insurance to address their particular risks. For example, not all cyber insurance policies will cover the insured if the data security breach was caused by an intrusion into a third-party vendor’s system, even though the insured is ultimately responsible for providing notice to consumers and may face lawsuits by consumers, banks and others. Companies that rely on third-party vendors to collect or store PII should make sure that any policy they buy covers losses due to an intrusion into third-parties’ systems.

David Smith and I have recently been writing and speaking about cyber risks and cyber insurance for the wine industry. While many of the high-profile data security breaches in the news involve large public companies, all businesses that accept credit cards for payment and/or have personally identifiable information from employees or customers are at risk of a data security breach. This is the case even if the collection or storage of such information is handled by a third-party vendor. Businesses should carefully consider their cyber risks and whether cyber insurance could help them manage those risks. We’d like to share an article we recently wrote on protecting your wine business against data security breaches and other cyber risks: Protect Your Wine Business Against Data Security Breaches and Other Cyber Risks.

Companies’ awareness of “cyber” risks has increased significantly because of large and highly publicized data security breaches, such as Target and Home Depot.  Companies are starting to more proactively manage the risk of data security breaches by strengthening their IT defenses and, in many cases, buying cyber insurance.  However, many do not realize that data security breaches are just the tip of the cyber-risk iceberg.  Because nearly our entire economic system depends on electronic devices, machinery and infrastructure that is connected to the internet (i.e., the “Internet of Things”), the potential exists for much larger scale hacking attacks that could control, damage, destroy or shut down many of the systems on which we rely to conduct business.  Some of this risk is covered by cyber insurance, but much of it is not.  Proactive and effective “Enterprise Risk Management” will be vital to companies seeking to protect themselves against these growing risks.  Businesses should carefully review their unique risk profiles, indemnity contracts and insurance policies (including their non-cyber “traditional” policies) to identify and mitigate their exposures.

We have all heard of the large scale attacks on Target, Home Depot and more recently, Ashley Madison.  The news generated by these cyber attacks has contributed to the public’s increasing awareness of the large volumes and types of personal information that companies are holding about their customers.  To protect themselves against some of the losses that such data security breaches may cause, many companies have prudently responded by buying “cyber insurance.” Continue Reading Systemic Cyber Risks And The Internet of Things

Insurance policies covering data breach liability began appearing roughly ten years ago. We noted then a troublesome provision in some forms that seemed to exclude coverage for the insured’s failure to maintain data security – in other words, the very risk the insured was seeking to insure. We’ll call it the “Mistake Exclusion.”  One AIG form from 2006, for example, excluded coverage arising out of “your failure to take reasonable steps to use, design, maintain and upgrade your security.” A 2009 Darwin form excluded coverage for any claim arising out of  “any failure of an Insured to continuously implement the procedures and risk controls identified in the Application for this insurance.” But isn’t liability insurance supposed to do just that – protect against the insured’s mistakes, innocent or negligent? We hoped and expected that as the market for these policies matured, savvy brokers and risk managers would insist that these Mistake Exclusions be removed or substantially narrowed. But that has not happened.

We now have the first case we are aware of by an insurer seeking to enforce a Mistake Exclusion. In Columbia Casualty Company v. Cottage Health Systems, filed May 7, 2015 in the U.S. District Court in Los Angeles, Columbia seeks to enforce an exclusion barring coverage for a data breach claim arising out of any “failure of an Insured to continuously implement the procedures and risk controls identified in the Insured’s application for this Insurance and all related information submitted to the Insurer in conjunction with such application whether orally or in writing.” Columbia’s complaint arises out of a class action suit against Cottage alleging that, for a period of two months in 2013, 32,500 patient records were accessible via the Internet. Cottage had hired a third-party vendor to store Cottage’s records electronically and that vendor mistakenly set the File Transfer Protocol settings to allow public access. Columbia funded Cottage’s defense and settlement, but is suing to recover all of its payments from Cottage.

Continue Reading New Case Highlights Deep Hole in Cyber Insurance Policies

Earlier this month, I gave a presentation with Irfan Saif, principal of Deloitte & Touche, on cyber insurance at the Institute for Advance Corporate Counsel (iACC) in Burlingame, CA.  We discussed how companies can analyze their data-related risks and develop strategies to mitigate those risks, including through the purchase of insurance.  Because cyber insurance is still a developing market, insurance policy forms are far from standardized and often can be negotiated.  As a result, it is important to carefully analyze your company’s data security risks and the proposed policy forms when considering the purchase of cyber insurance.  This is particularly critical when the company’s risks are related its data held by third-parties or computer systems that rely on third-party systems, as the scope of coverage for these risks varies widely among the policy forms currently available.

Continue Reading Panel Discussions on Mitigating Cyber Risk