Most businesses have ‘comprehensive’ insurance policies that cover damage to the company’s physical assets and protect against third-party bodily injury or tangible property damage claims against the company. But this traditional coverage generally does not fully protect against losses related to intangible assets, like computer-stored data and intellectual property.
“Businesses need to be aware of this exposure and consider specific coverage designed for their individual business needs and risks,” says Steven J. Ciszewski, a partner at Novack and Macey LLP.
Smart Business spoke with Ciszewski about where comprehensive polices might fall short and how to plug the holes with additional coverage for your business’s needs.
What types of coverage are available for computer-stored data and other cyber risks?
Some aspects of computer- or data-related losses might be protected by commercial crime coverage that applies when a third party or employee commits a crime or fraud directed at your business. This coverage can be an add-on to a general commercial policy or a stand-alone policy. Beyond that, many insurers offer both first-party and third-party coverage dedicated to computer and cyber risks. First-party coverage typically pays for costs incurred if your computer network or data systems suffer a catastrophic failure. The coverage might pay for costs incurred to restore your network and data, and/or the lost profits suffered because your business lost the use of its network and data. Third-party coverage protects against liability claims arising out of computer or cyber risks — for example, claims arising out of a breach of your network security. In the event of a breach, confidential customer information could be exposed or stolen. Third-party coverage would cover those claims and pay damages suffered by customers, pay for customer notification, and fund a credit-monitoring program for the affected customers.
What coverage is available for intellectual property?
Increasingly, courts have found that trying to secure coverage for intellectual property (IP) risks under a general liability policy is like trying to jam a square peg into a round hole. As a result, businesses with IP assets or exposure are wise to consider dedicated IP coverage. Again, this coverage generally falls into two broad categories: Defense coverage, which pays for the cost to defend and satisfy any judgment arising out of a claim that your business infringed another’s copyright, trademark, patent or other IP; and abatement coverage, which fronts the cost of pursuing a claim against another for infringing on your IP. For abatement coverage, even if your claim fails, the insurer typically covers all or most of the cost. If the claim succeeds and you recover, the insurer may be entitled to some of the recovery to offset the costs it fronted. For businesses with critical IP, both types of coverage are important just to pay for litigation costs, since IP litigation can often become prohibitively expensive.
Are there any other emerging areas where businesses may be unknowingly exposed?
Just like IP claims, many employment-related claims, such as discrimination — race, age, gender, etc. — sexual harassment or wrongful termination, are not covered by most general liability policies. Accordingly, businesses should consider employment practices liability (EPL) coverage. EPL policies pay for defense costs and for judgments arising out of these types of claims against your business by prospective, current or former employees. Again, coverage for defense costs is particularly important since it can be expensive to defeat even a frivolous claim brought by a disgruntled employee.
Steven J. Ciszewski is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or firstname.lastname@example.org.
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