The increasing size and frequency of cyber losses have resulted in premium increases and less favorable coverage terms. Now there is evidence that insurers are less willing to pay claims, alleging lack of coverage and/or non-compliance with policy requirements.
A post on the JD Supra website by Lynda Bennett and Michael Scales of Lowenstein Sandler LLC (at https://www.jdsupra.com/legalnews/riding-the-wave-ofcyber-insurance-3100511/) discusses a case pending in a California federal court. The insured, Boardriders Inc., suffered a ransomware attack in 2019. They contend they tendered the claim to their insurer, Great American, who insisted on detailed information and did not issue a coverage position for eight months. Boardriders tried to recover on its own and incurred significant losses. Great American did make payment but is now trying to argue Boardriders failed to prove the cause of loss.
Since there is little case law on cyber insurance, a decision in this case will impact whether insurers will deny coverage or make payments rather than face charges of bad faith.
There are steps insureds can take to minimize if not eliminate conflicts with insurers:
- Read and understand your cyber policy. If possible, get a specimen copy before purchase and have it explained by your broker or insurance adviser. Any questions they can't answer should be forwarded to the managing general agent who sold the policy, and if necessary to the underwriter. Check renewal policies for changes in coverage.
- Purchase a policy providing breach response services that can be accessed immediately on reporting a loss, so damage can be minimized.
- Be sure to comply with all policy requirements to maintain security. Your IT professionals, on staff or under contract, should be aware of them.
- Report a loss immediately, comply with policy requirements and respond to insurer requests for additional information as soon as possible.
- If not part of breach response services, engage an accountant and forensic specialist to prove the cause and extent of loss.
- If the insurer denies the claim or issues a reservation of rights, engage an experienced attorney to defend you.