Cyber Liability: New Exposures

New Economy, New Exposures Business shift: Bricks and Mortar to Clicks and Orders Online business is bigger than ever Public Web presence for all to access Explosive growth in the 21st century One billion websites and growing!

New Exposures Net expansion outruns General Liability (GL) coverage Existing policies do not account for Web-based liabilities Data theft is commonplace Increasing intellectual property liability claims

New Exposures Employee misuse of websites, emails and other electronic communications that involve: Harassment of other employees or outside individuals Accidental or purposeful slander or copyright infringement Use of pirated or unstable software Misuse of company data

Economic Exposures Trademarks Copyright implications Intellectual property rights Defamation Security Systems failures

Trademarks Risks: Cyber-squatting Registering domain names without consent Deep linking Linking to Web pages within sites Using unauthorized links To websites without consent

Copyright Implications Risks: Unlicensed duplication of copyrighted material Theft or unauthorized distribution of trade secrets, customer lists, etc.

Intellectual Property Rights Risks: Website content Ownership issues Who owns what content? What is the scope of the licenses? Patent infringement How to manage: Decrease legal liability with terms-of-use agreement Security and encryption concerns Review methods of authenticating information

Defamation Risks: Defamatory statements Opinions versus facts Postings Via websites Forums Publications Blogs Online bulletin boards

Data Security Risks: Collection, storage and use of information Privacy issues Security breaches Risk Management: Data Security Policy Data Encryption Employee Training Transfer liability to third-party vendor

Systems Failures Risks: Virus attacks Physical damage or interruption to servers Natural disasters

Employee-Related Exposures Employment liabilities Privacy violations Discrimination and harassment

Privacy Violations Employees claim their privacy rights were violated after the employer reviewed emails or personal files Employees claim privacy violations for website tracking or blocking of Internet sites

Discrimination and Harassment Employees receive unwelcome verbal, visual or physical conduct that is sexual or discriminatory in nature Conduct interferes with employee s work Employee feels violated and uncomfortable on the job Conduct occurs via email, forum posts on the Internet or by physically showing another employee explicit websites

Social Media Exposure Misuse of social media can open a company up to a variety of risks Keep track of what s being said about your company online, through social networks and blogs

Cyber Liability Insurance Scope: Any company with a Web presence or performing e-commerce activities Coverage: Intangible economic losses Destruction of home pages Network and server failure Unauthorized obstruction of customer information Restoration costs Fake orders Viruses Industrial espionage Base Rates: Overall revenues

Solution Options Internet Liability Insurance Covers for loss caused by fraudulent alteration or destruction of electronic information such as: Malicious copying of trade secrets Extortion, virus versus ransom Loss of business income caused by virus or destruction of electronic information

Solution Options Media Liability Insurance Includes coverage for: Libel and slander Invasion of privacy Infringement of copyrights Intellectual Property Network Security Product Recall

Features Occurrence policy Claims Made Policy with extended reporting periods (ERP) Duty to defend Punitive damages Jurisdictional

Possible Exclusions Typically, a traditional Commercial General Liability (CGL) policy will afford you coverage for business interruption, intellectual property damage, and similar losses. However, insurers are avoiding liability by including specific exclusions and requiring endorsements for this coverage. Therefore, a careful review of policy language is necessary.

Claim Example ü Corrupted data Example: A communications company sues for lost revenue and expenses to recover billing files for wireless customers that were deleted by their software vendor who was updating the system. Indemnity Paid: $750,000 Defense Costs Paid: $150,000

More Examples n 130 million credit card numbers were stolen from Heartland payment Systems (HPS) by an outside hacker n HPS s stock price had fallen 74% 45 days after the breach n The breach cost HPS upwards of $70 million n Kaiser Permanente was fined $200,000 for publicly posting 150 patient names, addresses and medical records on their website n A 2012 data breach insurance claims study done by Net Diligence found that the average cost of legal defense for a data breach was $582,000 and the average cost of a settlement was over $2 million!

Cyber Liability: New Exposures New Solutions from CONRAD INSURANCE