Because the risks of privacy breaches, data thefts and hacking are rapidly escalating, particularly for small businesses, Cyber Risk Insurance has become the hot new product in the insurance business. Not all insurance agents and brokers are regularly offering this coverage to their commercial clients, and they should be.
Unfortunately, there is a real-life example that demonstrates the importance of offering Cyber Risk coverage. According to reports (see here), back-up tapes with 1.7 million patient records from hospitals affiliated with the University of Utah were stolen from a service provider employee’s car. The University incurred more than $3.0 million in costs associated with the breach, and litigation has ensued between the University, the service provider, and the service provider’s insurer. It appears that no Cyber Risk Insurance was in place.
Unfortunately, the agent has been brought into the litigation. The allegations read, in part, as follows (see here, here, and here). Note that the actual participants are not important, and therefore we refer to the insurance company as Insurer, the service provider as Provider and the agents as Agents.
- Agents failed to obtain the needed insurance coverage for Provider, to which the University was a third-party beneficiary.
- Agents are liable for all damages resulting to the University in the event that coverage under the Insurer’s Policies is unavailable, and the expense in bringing a lawsuit to resolve the coverage issues and the Insurer’s denial of coverage.
- Agents were careless, negligent and made various negligent misrepresentations about Provider’s insurance coverage from Insurer, pursuant to Policies to which the University was a third-party beneficiary.
The claim against the agents would have been easy to avoid. Cyber Risk insurance provides protection from various risks associated with technology, including data breaches of the type noted above, and is easy to obtain (see here, and our prior post here). As noted at InformationLawGroup (see here):
Brokers should approach the market to obtain cyber insurance for their customers…Relying on a general liability or property policy to provide the coverage is no longer a wise choice (if it ever was).
The coverage is new and not well understood, but there is more than enough information available to educate clients. For example, we have an approach to ease the educational challenges for retail agents and brokers, and for their customers. As a wholesale broker, we provide Cyber Risk Insurance to all types organizations through retail insurance agents and brokers.