Tech and Cyber ​​Risk Insurance: Understanding the Basics

Coverage as complex as technology

There is a wide range of insurance products within the generic umbrella of Technology or Cyber ​​Risk insurance. Some policies provide first person coverage that insures covered losses directly suffered by you, the policyholder. Other variations provide coverage that includes losses to third parties: your customers. Professional liability insurance is the most important insurance requirement included in all IT service contracts. Menu-based policies allow selection between coverage modules to better correlate coverage to specific business exposures of the IT company. Because this is possibly the most important insurance you will buy, it is important not to view purchasing this insurance as a commodity. Not all policies are the same. Investing the time to compare available coverage options and policy limitations is essential to ensure your business receives adequate liability protection.

Exclusions – A good place to start understanding what your policy covers.

Having a clear understanding of what your cyber risk policy does not cover is just as important as understanding what it does cover. Some of the prominent coverage exclusions contained in cyber risk policies are summarized below. It is important to note that the exclusions of a policy do not always appear in the Exclusions section. Many insurance policies often impose coverage limitations on other parts of the policy, such as in the Definitions section. Similarly, policy exclusions sometimes contain cuts or exceptions to the exclusion that typically make part of an exclusion unenforceable, extending coverage in specifically defined circumstances.

Some typical exclusions are:

• Claims involving the withdrawal, replacement, repair or supplementation of the Insured’s product or service.

• Claims alleging software failures involving software that is in a testing phase or that is not in a general commercial version.

• Claims related to rate disputes.

• Claims involving electrical, mechanical or telecommunications failures or interruptions, unless the failure was caused by illegal acts covered by the Insured.

• Claims alleging invalidity, misappropriation, or infringement of a patent, trade secret, copyright, trademark, or service mark, unless derived from electronic publishing activity.

• Certain procedures initiated by federal, state, or local government agencies, licensing authorities, or rights organizations, except for claims related to network security or privacy.

• Claims alleging the unauthorized collection of personal data from third parties with the knowledge of the main partner, director or officer of the Insured are attributed to other Insured and / or the entity.

Readers should not be under the impression that these policies do not cover much. On the contrary, these insurance policies provide very comprehensive and valuable coverage. The definition of “wrongful act” found within one of the most prominent cyber risk policies states: “… means any error, misstatement, misrepresentation, act, omission, negligence, breach of duty or crime of injury personal actually or allegedly committed or attempted by any Insured in his or her capacity as such: “This clause is followed by a litany of coverage triggers that include, but are not limited to:” failure of the Insured’s technology Services, Technology Products, electronic media exposures, product smear, defamation trade, public disclosure of private facts, plagiarism, piracy, copyright and domain name infringement, service mark infringement, negligence regarding the creation or dissemination of electronic content, inadvertent violation of privacy rights or regulations and threats of extortion on the web. “

Professional Technology Liability Insurance

IT professionals provide a variety of technology-related services spanning web-based and technology-based services. Liability may stem from the ineffective provision of professional services. These claims are generally presented as a failure of the services provided to function as expected. Typically, they allege that the services caused a customer to suffer property loss and / or economic damage due to loss of business income. Some claims allege losses due to a customer’s system being exposed to an unauthorized access threat that could result in privacy concerns or the threat of cyber extortion. It is important for IT professionals to understand that while the scope of coverage in cyber risk policies is broad, it is not all-inclusive. For example, these types of insurance policies do not provide coverage for claims involving delays, cost overruns, or certain other business-related disputes.

The Checklist: Does Your Policy Cover …?

Some Questions Tech Companies Should Ask About Their Cyber ​​Risk Policy …

• Is the defense fully covered with no allocation of defense costs between covered and uncovered claims if at least one covered claim is asserted?
• Does the Data Breach coverage include both your own and third party expenses?
• Does the Privacy Coverage apply to third parties such as clients and employees of the Insured?
• Does the policy provide expense coverage to comply with Consumer Privacy Notice regulations and credit monitoring expenses?
• Are the costs of hiring public relations or crisis management firms and / or law firms covered in the event of a privacy breach?
• Are data breach claims subject to deductibles, withholdings, or coinsurance?
• Are regulatory penalties, pre-trial and post-trial interest covered?
• Does business interruption coverage include costs to upgrade information assets beyond their pre-loss state?
• Are consequential damages covered?
• Is contractual liability covered if there is liability in the absence of the contract?
• Does the policy’s definition of legal proceedings include arbitration?
• Is there additional insured coverage available if required by contract?
• Are independent contractors covered if the claim is also filed against an insured?
• Are Defense Expenses for Unfair or Deceptive Business Practices covered unless a final judgment is adverse to the Insured?
• Will the policy provide defense coverage for claims seeking only injunctive relief?
• Does the policy offer an option to include professional liability coverage?

Whether the IT company is a small, medium or large company, when losses arise relative to the scope of their respective contracts, they can have a devastating effect. Before even considering potential financial damages, consider the cost of defending a technically complex claim. Without adequate insurance, those defense costs can be enough to cripple most IT service providers or, certainly, put severe pressure on a company’s profitability. Additionally, there are public relations consequences and other related expenses that may be incurred in connection with such claims. Cyber ​​risk or technology insurance, if properly designed, provides critically important protection to any technology-related business, ensuring its ability to continue operating even after suffering a devastating professional services claim.