Business Interruption Coverage Times Three


...expenses incurred when a computer system or network is disrupted or shut down by an insured cyber peril such as a virus, hacking or denial-of-service attack.

As the cyber insurance market grows, coverage responds under some — but not all — policies to financial losses, liability claims, extortion (“ransomware”) and the costs associated with legal, forensic and notification expenses in the wake of a data breach.

Contrasts and Overlaps

Seasoned property claim professionals are well aware of the conflicts that can arise when business interruption coverage is provided under two separate policies or coverage parts.

Such conflicts are common enough that a “Joint or Disputed Loss Agreement” has become a standard feature of equipment breakdown policies; an equivalent provision is often added to a property policy when equipment breakdown coverage is written by a different carrier. Under such agreements, insurers jointly pay the full recovery to the insured and then later resolve any dispute among themselves over which policy covers the loss — and how much of it.

Hard as it is to determine the extent of a physical loss due to a particular peril, it’s even more difficult to determine shares of responsibility for an income loss. Structures and contents, including equipment (which could be either), are physically distinct but work together to generate earnings in common. Assigning shares of an income loss is among the most contentious issues adjusters face.

It’s likely to get even more contentious as more and more organizations add cyber insurance to their first-party coverage and as business interruption is covered under more and more cyber policies.

Given the recent attacks, it’s not hard to imagine simultaneous or related losses caused by property, equipment breakdown and cyber perils, each of which could trigger income and extra expense coverage:

In each case the insured could be faced with business interruption coverage provisions subject to different limits and sublimits, different waiting periods and dollar deductibles, different conditions for justifying extra expenses, and different time limits for an insured period of restoration.

Maintaining a Distinction

Generally speaking, property, equipment breakdown and cyber insurers are trying to maintain...