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Cyber Insurance vs. General Liability

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One of the biggest data breaches of all time involved that of Sony Corp. The hackers stole confidential information from tens of millions of Sony PlayStation Network users. Despite this humongous breach, something surprising happened: New York Supreme Court Jeffrey Oing ruled that Mitsui Sumitomo Insurance Co. and Zurich American Insurance Co. owed NO defense coverage to Sony Corp. or Sony Computer Entertainment America LLC.

And why? Oing said that the coverage can’t be triggered through a third-party action: that by the hackers.

It seems, then, in order to get coverage, Sony itself would have to do the hacking. “They're being held liable even though the wrongdoing was done by a third party,” explains Robin Cohen to Law360. Cohen heads a law firm that handles insurance recovery.

To determine coverage obligations, Zurich filed a lawsuit against Sony, which had to shut down its PlayStation Network for a month.

Oing’s ruling will likely motivate companies to obtain policies that specifically insure against data breach claims. However, many companies believe that such specific insurance is already built into their current general liability policy.

Insurers all across the nation are wanting to put language in their policies that exclude coverage of losses stemming from data breaches, which include loss of credit card information. However, courts have the final say-so in just how far these exclusions can go.

Companies need to seriously consider cyber insurance policies that specialize in coverage of data breach losses.

K&L Gates LLP partner Roberta Anderson told Law360, “Irrespective of whether the Sony trial court's view is widely adopted, it's ill-advised for policyholders to rely on general liability policies for data breaches.”

It’s expected that Sony, which has strong arguments for their appeal according to policyholder attorneys, will challenge Oing’s decision.

Robert Siciliano is an Identity Theft Expert to AllClearID. He is the author of 99 Things You Wish You Knew Before Your Identity Was Stolen See him knock’em dead in this identity theft prevention video. Disclosures.

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