Conventional wisdom has been that insureds might be able to recoup losses for cyber-related risks causing personal injury or property damage to third parties by submitting claims to their general liability insurers. But that window is closing.
In 2013, the Insurance Services Office (ISO), an industry organization responsible for drafting coverage language, issued two endorsements for CGL policies which eliminate the possibility of CGL coverage for cyber-related losses:
- ISO Endorsement CG 21 07 05 14 excludes coverage for damages arising out of: “The loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.” “Electronic data” includes “information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software … which are used with electronically controlled equipment.”
- ISO Endorsement CG 21 06 05 14 contains identical language, but contains a limited exception for bodily injury.
These endorsements are appearing more frequently in CGL policies, and insurers are likely to argue that they exclude liability coverage for bodily injury or property damage claims which are the result, for example, of security breaches in to computers, and electronic programmable controllers of all kinds, including ubiquitous programmable logic controllers (PLCs), used in everything from Christmas trees to cars to manufacturing plants.
Moreover, in its current form, stand-alone cyber insurance may not close the gap. Most existing cyber-insurance policies, or ones in development, contain exclusions for bodily injury or property damage. These exclusions are based on an assumption which is becoming less and less true — that CGL coverage responds to such losses.
Those monitoring this industry issue say it is likely too soon in the process to tell if the gap is likely to become a significant one. While not all insurers are using the new ISO language, it is becoming more and more popular, however. The case law remains in its infancy, so there is little to no current guidance on this specific problem.
Conducting a thorough review of existing insurance policies to diagnose the gap is an important first step. Filling the gap, however, is somewhat more complicated. It may be that unique products like captive insurance coverage might be the best solution for this exposure, unless and until the conventional insurance market responds.
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