Does Your "Cyber" or "Data Breach" Insurance Cover What You Think It Does?
As companies struggle with the risks and exposures related to data breaches, insurance can be an important part of an overall risk management strategy – so long as it is the right insurance.
Insurance carriers are offering products that purport to address this type of risk. Such insurance can be particularly important to businesses for which the handling of personal information or protected health information, such as some HIPAA “business associates,” is their lifeblood. However, as an ongoing litigation in a Utah federal district court makes clear, it is critical for businesses to be cautious and thorough when assessing insurance coverage, if only to avoid litigation about the scope of the coverage.
Court filings show that Perpetual Storage, a data storage company, had purchased certain insurance coverage through Colorado Casualty Insurance. One of Perpetual’s clients, University of Utah Hospitals and Clinics, stores significant amounts of its data with Perpetual, including personal information and protected health information. The University experienced a data breach on June 1, 2008, when storage disks were stolen from the car of a Perpetual employee who had picked up the disks from the University. The University claims the breach affected 1.7 million people. Claims expenses totaling approximately $3,354,753 were incurred in the course of responding to the breach. The specific costs alleged are $2,483,057 for credit monitoring expenses, $646,149 in printing and mailing costs, $81,389 in phone bank costs, and $144,158 in additional miscellaneous costs.
Naturally, the University is looking to Perpetual to reimburse it for these costs. In turn, Perpetual is looking to its insurance carrier, Colorado Casualty, to back it up. The insurer, however, has denied coverage. Colorado Casualty seems to be asserting that the claims do not constitute certain “bodily damages” or “property damages” as those terms are defined in the applicable policy. The insurer also claims that a number of policy exclusions support its decision to deny coverage.
At the same time, the University is seeking in its lawsuit to bring its insurance broker and adviser into the litigation, alleging they were "careless, negligent, and made various negligent misrepresentations about Perpetual's insurance coverage from Colorado Casualty."
A ruling in favor of Colorado Casualty likely would make it more difficult to seek reimbursement under commercial liability policies in connection with data breaches. Such a ruling also should be a wake-up call to businesses relying on their current commercial liability policies to deal with data breach issues.
The moral of the story for businesses - review your coverage with your insurance brokers or other insurance advisers to ensure appropriate coverage.
