WIN Magazine - Fall 2017 - 24

FEATURE

7.5-MINUTE READING TIME

©ISTOCK.COM/WAVEBREAK

CYBER INSUR ANCE

The cyber
insurance
conundrum
The second in a two-part
series on cyber insurance.
by ELIZABETH S. FITCH, CIPP/US AND
THEODORE M. SCHAER, CIPP/US

I

N OUR FIRST INSTALLMENT OF
the current "conundrum" involving cyber liability insurance and
exposures as published in the last
issue of WIN magazine, we examined the duties and challenges
faced by wholesale agents and brokers
writing this line of business. In this final
installment, we will discuss the liabilities and exposures in writing the coverage, and provide some current examples
and disputes of where issues arose from
the coverage that was written.

LIABILITIES/EXPOSURES
OF CYBER BROKERS
There are four distinct categories
against brokers that are likely to evolve:
(1) failure to procure coverage for regulatory actions, fines and penalties; (2) failure to recommend an adequate policy
limit and to inform the insured of sublimits; (3) failure to procure coverage for
Payment Card Industry assessments;
and (4) failure to discuss ramifications
of insured's failure to comply with
the representations and warranties in
the application.

24 | F A L L 2 0 17 | W I N M A G A Z I N E

COVERAGE FOR REGULATORY
ACTIONS/FINES/PENALTIES
The importance of regulatory coverage is best illustrated in Federal Trade
Commission v. Wyndham Hotels.1 The
Federal Trade Commission filed a lawsuit against certain corporate entities
affiliated with Wyndham Hotels, claiming that Wyndham Hotels failed to provide reasonable security measures for
its customers' information and allowed
the unauthorized access of such data on
multiple occasions. The FTC alleged that
this failure violated the FTC's Act's prohibition on unfair and deceptive trade
practices. The 3rd Circuit Court agreed
with the FTC and found that the FTC
has authority to regulate cyber security.
Ultimately, Wyndham had little choice
but to settle with the FTC.
Many stand-alone cyber insurance
policies affirmatively provide coverage
for the defense of regulatory actions
arising from a data or security breach,
as well as resulting fines and penalties -
to the extent such are insurable under
the law. Some policies contain broad
coverage, while others have a narrow

definition of "regulatory proceeding."
Therefore, it is incumbent upon the
cyber insurance broker to procure a
policy that includes the broadest form
of coverage for the types of regulatory
proceedings that may be triggered as a
result of the insured's operations.2

CYBER INSURANCE
SUB-LIMITS
Cyber insurance policies are unique in
that many contain multiple sub-limits
and oftentimes sub-limits within sublimits. Due to the sheer number of sublimits the insured can easily become
confused. Greater confusion can occur
where cyber coverage is conferred via an
endorsement that does not have a separate declaration page outlining the limits available for the endorsed coverage.
Given industry knowledge that unsophisticated insureds do not carefully
review the policies, the broker's duty to
act with reasonable care may require
the broker to not only understand the
sub-limits, but also to properly counsel
the insured on the financial implications
of the sub-limits.


http://www.ISTOCK.COM/WAVEBREAK

Table of Contents for the Digital Edition of WIN Magazine - Fall 2017

Do Hurricanes Have a Silver Lining?
Underwriting Marijuana
The Cyber Insurance Conundrum
Writing Data Security Into Law
Gauging Risk, Reaping Reward
Simply Seamless
Moving to the Cloud: 3 Migration Strategy Models and the 6 R’s.
In the WIN-NER’s Circle
WIN Magazine - Fall 2017 - Intro
WIN Magazine - Fall 2017 - bellyband1
WIN Magazine - Fall 2017 - bellyband2
WIN Magazine - Fall 2017 - cover1
WIN Magazine - Fall 2017 - cover2
WIN Magazine - Fall 2017 - 3
WIN Magazine - Fall 2017 - 4
WIN Magazine - Fall 2017 - 5
WIN Magazine - Fall 2017 - 6
WIN Magazine - Fall 2017 - 7
WIN Magazine - Fall 2017 - 8
WIN Magazine - Fall 2017 - 9
WIN Magazine - Fall 2017 - 10
WIN Magazine - Fall 2017 - 11
WIN Magazine - Fall 2017 - Do Hurricanes Have a Silver Lining?
WIN Magazine - Fall 2017 - 13
WIN Magazine - Fall 2017 - 14
WIN Magazine - Fall 2017 - 15
WIN Magazine - Fall 2017 - 16
WIN Magazine - Fall 2017 - Underwriting Marijuana
WIN Magazine - Fall 2017 - 18
WIN Magazine - Fall 2017 - 19
WIN Magazine - Fall 2017 - 20
WIN Magazine - Fall 2017 - 21
WIN Magazine - Fall 2017 - 22
WIN Magazine - Fall 2017 - 23
WIN Magazine - Fall 2017 - The Cyber Insurance Conundrum
WIN Magazine - Fall 2017 - 25
WIN Magazine - Fall 2017 - Writing Data Security Into Law
WIN Magazine - Fall 2017 - 27
WIN Magazine - Fall 2017 - 28
WIN Magazine - Fall 2017 - 29
WIN Magazine - Fall 2017 - 30
WIN Magazine - Fall 2017 - Gauging Risk, Reaping Reward
WIN Magazine - Fall 2017 - 32
WIN Magazine - Fall 2017 - 33
WIN Magazine - Fall 2017 - 34
WIN Magazine - Fall 2017 - 35
WIN Magazine - Fall 2017 - Simply Seamless
WIN Magazine - Fall 2017 - 37
WIN Magazine - Fall 2017 - Moving to the Cloud: 3 Migration Strategy Models and the 6 R’s.
WIN Magazine - Fall 2017 - 39
WIN Magazine - Fall 2017 - In the WIN-NER’s Circle
WIN Magazine - Fall 2017 - 41
WIN Magazine - Fall 2017 - 42
WIN Magazine - Fall 2017 - cover3
WIN Magazine - Fall 2017 - cover4
WIN Magazine - Fall 2017 - outsert1
WIN Magazine - Fall 2017 - outsert2
WIN Magazine - Fall 2017 - outsert3
WIN Magazine - Fall 2017 - outsert4
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