#CyberFLASH: Cybersecurity and M&A – Part Three: Cyber Insurance

10712553Cyber Insurance Coverage

An important preliminary note on cyber insurance is that cyber insurance is often confused with technology errors and omissions insurance (commonly called “Tech E&O” insurance). Tech E&O insurance protects providers of technology services or products, such as software designers and manufacturers, whereas cyber insurance protects consumers of those products and services.4

Generally, cyber insurance is divided into first party coverage protecting the policyholder, and third party coverage protecting from third party claims against the policyholder.

First party policies may cover:

  • the costs associated with investigating the scope of the breach and taking steps to mitigate against the damage caused by the breach;
  • the costs of providing notice to individuals whose identifying information was compromised;
  • public relations services to counteract the negative publicity that can be associated with a data investigation;
  • the costs of responding to government investigations;
  • the costs of replacing damaged hardware or software, or remediating existing systems;
  • legal costs and other related expenses, such as regulatory fines;
  • the costs of responding to parties vandalizing the company’s electronic data; and
  • business interruption costs

On the other hand, third party policies may cover claims:

  • for permitting access to identifying information of customers;
  • emanating from the impacts which a security breach may have on a third-party system;
  • for transmitting a computer virus or malware to a third-party customer or business partner;
  • for failing to notify a third party of their rights under the relevant regulations in the event of a security breach; and
  • for potential “advertising injury,” i.e., harms through the use of electronic media, such as unauthorized use or infringement of copyrighted material, as well as libel, slander, and defamation claims.

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