October 29, 2015

The Wild Wild West of Cyber and D&O Insurance

To contact Miller Friel, please give us a call at: 202-760-3160.

It was appropriately said that we are living in the “Wild Wild West” when it comes to cyber insurance.  Insurance carriers are pushing products and policyholders, in dire need of cyber solutions, are buying cyber-insurance policies to protect against the fear of cyber-attack.  Unfortunately, many insurers have resorted to high profile coverage litigation to avoid paying cyber claims under the very cyber-policies that they are simultaneously selling as cyber solutions.  Much of the off-the-shelf cyber coverage that is being sold nowadays is not worth the paper it is printed on. 

D&O insurance, in contrast, has had time for the markets to correct some of the most obvious issues with coverage.  Still, many of the “off-the-shelf” improvements that insurance carriers and brokers recommend create more problems than they solve.  These so-called “improvements” to the policy oftentimes backstop new legal theories for denying claims that insurance company lawyers and are simultaneously pushing in the courts. 

A thorough legal review of corporate insurance policies is now the standard for most companies.  The increase we have seen with corporate clients seeking these kinds of legal reviews is driven not only by corporate necessity, but also by the fact that we have decades of experience in this area of law.  We know what language should be included in corporate insurance policies and what language needs to be amended or removed.

In this video, Mark Miller provides insights into legal insurance policy reviews to help companies sidestep potential future insurance claims problems.

Here is a transcript of today’s video:

What role does an insurance recovery lawyer play in reviewing corporate insurance programs?

What role does an insurance recovery lawyer play in reviewing corporate insurance programs? We’ve seen a lot of clients ask us to review their programs. They vary from D&O, to cyber, to property, to E&O and it really depends on the clients needs. But what we’re seeing a lot of nowadays, in part because of some things happening in the case law, is that’s the insurance carrier seem to be denying claims on some products that are sold to cover exactly the kind of things that are designed. Clients are getting worried. They’re wondering, boards are asking them to check. Boards are saying, we need to be covered for cyber coverage. Can you take a look at this policy or these policies and make sure it’s covered. Boards are saying, I’m not sure that this D&O insurance is adequate for my personal benefit? Can somebody review it? A lot of times we overview it for the company, sometimes we review it for an individual board member. 

We’re really seeing two major problems that we think need to be addressed. One is there are certain kinds of policies that are being sold that are absolutely worthless. They’re not worth the paper they’re printed on. Unfortunately these are policies that clients are buying. Cyber liability is the biggest example of this slew of cases out there that the Insurance companies have filed saying that there is no coverage to these new policies that they have just issued to cover cyber liability issues. So what you’re seeing is the insurance companies marketing force like you wouldn’t believe, move the product to sell it, make some good money off that product, but then at the tail-end they’re denying the claims. So I would not buy any cyber insurance policy without legal review and by legal review I mean by lawyers. 

That brings me to my second issue Insurance brokers play a vital role. I’ll put this in the context of D&O insurance. You need broker, a good broker, and that broker will take the main policy form and they will add on endorsements to it. Those are the pre-approved endorsements. They know the insurance company has gone for before and they know the insurance company has approved it internally and they know that insurance company will put that endorsement on the policy. So in an ideal world when we do a legal review, we get the best of the best. The best form and we get the best endorsements that the brokers has been able to put together. What do we do with that? We look at it to make sure that it does what it’s supposed to do. And a lot of times it doesn’t, no offense to anyone, but some of those issues are not looked at in great detail and some are just ignored. For example, you may find a form that says it’s going to fix a certain problem. It’s the form that fixes the problem, but when you read the form, when you look at it, you find out that it sort of fixes that problem, but it opens a whole other door which is going to be more detrimental. So the bottom line is that you have to take a holistic approach. So what we do is that we take the best of the best that the broker can put together and will look at it and will make 5-10 recommendations for changes. And those changes may be, hey you use the wrong form, but usually not, usually it’s, there’s better language out there that this insurer has accepted in the past and we’d like you to use this language in this policy. 

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