Common Reasons Cyber Liability Claims Are Denied

Fri Jun 9th, 2023 on     Insurance Claims,    

At our Miami insurance law firm, Ver Ploeg & Marino, we often represent companies that have had their claims for cyber liability denied by their insurers. These claims consist of different types of liability issues from cyberattacks to data breaches, and can cause a company to suffer significant financial and reputational losses. 

First-Party Losses vs. Third-Party Losses

There are two types of losses that can be sustained and trigger a claim for cyber liability. They are first-party losses and third-party losses. First-party losses occur when the actual policyholder experiences a loss, such as a reduction in business income. Third-party losses occur when the third party suffers a loss due to their relationship with the policyholder. An example would be if a company’s data is breached, exposing its client’s private information to others. At our Miami insurance law firm, Ver Ploeg & Marino, our attorneys are well-versed in representing policyholders in both types of losses.  

Policy Does Not Cover Cyber-Related Events

Every insurance policy contains exclusions of what will not be covered. Many policyholders find that when they make a claim for a cyber-related event, their claim is denied as the insurer claims it is listed as an exclusion. Oftentimes, whether or not a cyber event should be covered will depend on the verbiage contained in the actual policy. Having an experienced attorney from a Miami insurance law firm that knows how to interpret policy language and analyze the terms and provisions contained in the policy is imperative to obtaining compensation, especially when these claims must be litigated. 

It is important to note that not all cyber events are covered, and all policyholders should carefully review a policy prior to purchase to ensure it meets all their needs. Also, because business needs change over time, an insurance policy should be reviewed on a regular basis to ensure it continues to serve the needs of the company. 

Policyholder Failed to Maintain Security Standards

Policyholders must pay attention to the “negligence exclusions” contained in their policies, as these exclusions often require that the policyholder maintain a certain level of security standards. These exclusions can be tricky to interpret, and when a claim is denied due to a failure to maintain security standards, an attorney from a Miami insurance law firm is often needed to decipher policy terms and determine if the claim for coverage was wrongfully denied. 

To prevent any future issues from occurring, policyholders should be proactive and have established practices in place in case of a cyber attack or breach. These practices must be kept current and should, at a minimum, provide the coverage required under the terms of the insurance policy. There are many different security options available, and by working with security advisors companies are able to prevent many attacks on their systems.

Policyholder Failed to Document Preventative Measures

Documentation is key when attempting to obtain compensation for a cyber event from an insurer. Insurance companies are quick to look for reasons to deny coverage, and when a company is unable to provide the documentation needed to prove its compliance with the terms of the insurance policy, the insurer often uses this as justification for denial. There are ways that compliance can be automated so that should a cyber event occur, and when implemented, obtaining proof of the preventative measures for a Miami insurance law firm is not difficult. 

Documentation can include the following:

  • Proof of employee training on potential cyber events, such as phishing schemes
  • Proof of multiple layers of security
  • Proof of a vulnerability assessment that was completed prior to the cyber event, as well as compliance with any recommendations made as a result of the assessment

A Third-Party Stakeholder Is To Blame

A policyholder’s insurance policy is a contract between them and the insurer. Policyholders should not only be concerned with their own security measures but should also ensure that other parties with network access comply with implementing security measures. Any third party that has an interest in the company should also implement, maintain, and document its compliance with mandated security measures. When they do not, the insurer may deny a claim for a cyber event caused by that third party’s lack of security protocols. 

Companies need to be intentional regarding who they allow to have access to their networks and limit the exposure to necessary parties. They should also institute measures to ensure all preventative measures are taken so that should a cyber attack occur and be successful, the insurer cannot deny the claim based on the actions or inactions of the third party. 

At Ver Ploeg & Marino, a Miami insurance law firm, our attorneys will fight for policyholders that have had their claim denied due to a third party failing to follow proper security protocols.

Cyber Event Occurred Outside the Coverage Timeframe

Every insurance policy has time frames during which they will cover certain events, and cyber liability policies are no different. Some insurers include policy terms that place strict coverage limits on any interruption in service that occurs due to a cyber event. Policyholders should be aware of this and should also know how long they can expect to be out of service should a cyber event occur as claims made outside of the timeframe specified in the insurance policy will be denied. 

Another factor to be aware of is that most insurers have a period of time during which the company will be responsible for interruption in service before the insurer becomes liable. Companies should know what this timeframe is, as well as their ability to function without the help of insurance for that amount of time. 

A Miami Insurance Law Firm Dedicated to Assisting Policyholders With Denied Cyber Liability Claims

If your company’s claim for coverage under its insurance policy for a cyber breach or attack has been wrongfully denied, you need to contact an attorney at our Miami insurance law firm, Ver Ploeg & Marino. We are a firm dedicated to assisting policyholders when the claims they make under their insurance policies are not honored. Contact us to learn more about how we can assist you.

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