Don't Skimp on Cyber Coverage

Underinsured Businesses: A Costly Oversight

In the complex world of modern business, insurance is often seen as a necessary evil, a safeguard against unforeseen risks. Yet, many businesses, particularly smaller ones, often overlook the importance of adequate coverage, leading to significant financial burdens when disaster strikes. When these businesses find themselves underinsured, they can face exorbitant costs for legal representation, forensic investigations, and regulatory compliance and much more.

Where Do Costs Go?

The consequences of underinsurance can be devastating. When a business is faced with a lawsuit, data breach, or regulatory violation, the costs of defending themselves can quickly escalate. Legal fees, forensic experts, and the time spent complying with regulations can all take a substantial toll on a company's finances. In many cases, these expenses can exceed what the business would have paid for comprehensive insurance coverage.

Recent examples of underinsured businesses facing significant financial burdens abound. For instance;

• Weeks ago a small, otherwise successful retail chain in the United States was forced to declare bankruptcy after a data breach exposed the personal information of millions of customers. The costs of legal representation, forensic investigations, and regulatory fines far exceeded the company's insurance coverage.

What Role Do Lawyers Play?

Data security lawyers often play a crucial role in cases involving underinsured businesses. When a company is faced with a data breach or other security incident, these lawyers may sue the insurance company on behalf of the business. They argue that the insurance company should be responsible for covering the costs of the incident, including legal fees, forensic investigations, and regulatory fines. However, the success rate of these lawsuits is relatively low. Insurance companies often have sophisticated legal teams that are adept at defending against such claims. Some common issues that occur include;

• The client misrepresented themselves with inaccurate data about their controls and cybersecurity defenses
• The coverage contains sub-limits that minimize coverage, or reduce coverage to a per-incident occurrence.
• Misunderstandings about the nature or the potential size of the risk were at fault

These can often turn into disputes between insurance agents and insurers, and ar resulting in increased litgation, and a demand for Errors & Omissions (E&O) insurance.

Simply put, the failure to identify risks and obtain adequate insurance coverage can have serious financial consequences for businesses. When disaster strikes, the costs of legal representation, forensic investigations, and regulatory compliance can quickly escalate. While data security lawyers may attempt to hold insurance companies accountable, the success rate of these lawsuits is often limited. It is imperative for businesses of all sizes to carefully evaluate their insurance needs and ensure that they have sufficient coverage to protect themselves against potential risks.

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