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What Legal Language Should I Look Out for When Selecting Cyber Insurance?

At times, vague coverage can actually work for you.

Question: What legal language should I look out for when selecting cyber insurance?

Andrea Luoni, CEO and founder of RateCraft: This is a great question because a higher premium does not always equal better protection when it comes to cybersecurity insurance. That's because money does not guarantee protection – language does. Many coverages can actually be added or increased by adapting the language with little to no change in premium. 

Although it may not seem like it in the moment, vague coverage surrounding cybersecurity can be better in some cases, as it can give business insurance attorneys more room to find an opening for coverage in the case of a legal conflict with the carrier.

Conversely, if the language is very specific, be cautious of what it is or is not saying. For example, if the policy lists coverage for being hacked or a ransomware attack, these are good things to be included that could be of great concern to a business. However, that may mean other cybersecurity issues, such as social engineering, are not covered. The business may not even know to look for social engineering coverage or whether the carrier offers the coverage but under a different name. 

Read the fine print, or exclusions, too. It could have a clause that voids coverage for "insider compromise" or that unknowingly requires social engineering coverage to have dual authentication implemented. A cyber policy should also have universal triggering definitions between first- and third-party coverages. Many policies can lack this, which can cause problems if claims are covered on one side of a policy and not the other.

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Richard F.
Richard F.,
User Rank: Strategist
10/7/2020 | 11:32:17 PM
Subtle Danger - Disasterous Consequences
Even more dangerous is the trend of increasing numbers of insurers, especially foreign insurers, to insert unexpected arbitration and choice of law provisions.  Many businesses do not read or fully understand the entire policy, including the "fine print." Insured businesses only discover when coverage is denied or disputed, coverage disputes are not resolved locally in their state court, by state judges knowledgible about the businesses own state insurance laws. 

Instead those businesses are often forced into very expensive arbitrations in distant states, under another state's laws, or even required to assert their claims in foreign countries with that country's laws controling the arbitration process. The arbitrators are often insurance industry insiders, frequently active or former officers or directors of insurance companies or reinsurance companies. Many experienced policyholder attorneys advise rejecting any insurance that tries to impose arbitration, or foreign law, especially if the place of arbitration "venue" is not in your home state.

Yes, it can be very difficult to obtain higher limits of coverage, or to assemble a reasonable insurance tower and avoid arbitration. After 40+ years as an arbitrator and counsel in arbitrations, I can assure you it is well worth taking the time to obtain the right coverage.

The officers and directors of any business considering an insurance policy that has arbitration or choice of law provisions or foreign venue provisions must ask, "Can our business afford to pay the cost to retain local attorneys, and New York attorneys or London barristers as counsel, and to also pay the expenses of 3 arbitrators and the costs of hearings in New York, Hamilton, Bermuda, London, England etc.?"

My Jesuit instructors used to advise, "If you can not be a good example, at least serve as a horrible warning."

Hurricane Katrina destroyed some of my clients' Louisiana businesses.  Multiple layers of insurance refused to pay and disputed coverage. As an example, the deposit for each of 4 separate arbitrations averaged USD $250,000.00.  While my clients had a destroyed major building and no ability to conduct business, they had to raise approximately USD $1,000,000.00 to simply start the arbitrations. Then they also had to pay for teams of lawyers and half of the cost of 12 arbitrators each charging $750 to $1,000.00 an hour to argue about whether coverage existed under New York and English insurance law. OThe contractually stated venue for one arbitration was Hamilton, Bermuda.  The remaining three arbitrations were contractually required to be held in London, England.   

BEFORE buying cyber insurance, consult a knowledgible policyholder lawyer, and a good insurance broker. If you do not, you may be in for a very rude and expensive education.  IF your business even survives.


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