IoT Attacks Reveal Insurance Coverage Gap

In today’s legal world, a gap exists between general liability policies and cyber policies. For those who are not familiar with these two principles, policies concerning general liability typically cover bodily injury and property damage to a third party. However, many exclude damages caused by the loss of electronic data. Cyber policies, on the other hand, cover damage to electronic data but exclude bodily injury and property damage.

IoT attacks can fall precisely into this gap. To present an example, in 2016, two apartment buildings in Finland were left with no heating for more than a week in November when hackers launched a DDoS attack on the buildings’ environmental control system.[1] Fortunately, the sub-zero winter hadn’t arrived yet and the building management relocated the residents promptly.

In this instance, a general liability policy would have covered a claim for bodily injury. However, the business may face an uphill battle to win coverage for loss of electronic data. Some policies expressly exclude damages caused by loss of data. A cyber policy would cover the damage to the electronic data stored in the environmental control system but may exclude bodily injury and property damage claims. The property management could be left with no coverage despite paying premiums on two separate policies.

Policyholders, insurers, and underwriters are beginning to face these issues on a more frequent basis. Some seek a hybrid policy that combines traditional and cyber policies. That can certainly help, but when the novel claim arises, it may still be subject to traditional interpretations and mindsets, notwithstanding the hefty, modern premiums paid.

The attorneys at Slater Hersey LLP have deep experience helping clients navigate difficult cyber insurance claims. We can help examine your existing policies and identify opportunities with the novel, difficult claims that inevitably arise as technology evolves. Contact us today to set up a consultation.

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[1] HACKERS USE DDOS ATTACK TO CUT HEAT TO APARTMENTS, Forbes, https://www.forbes.com/sites/leemathews/2016/11/07/ddos-attack-leaves-finnish-apartments-without-heat/#27cc69c91a09 (last visited Feb. 20, 2018).