Insight

Cyber School

Cybersecurity and the Claims and Litigation Management Alliance’s School of Cyber Claims

Cyber School
ES

Elizabeth S. Fitch and Theodore M. Schaer

March 31, 2016 12:00 AM

According to the 2015 McAfee Security Paradox Report, 63 percent of midsize U.S. companies have experienced a data breach.

WHY?

Lack of proper cyber education makes them easy targets for hackers. According to the 2015 NetDiligence Study, the average payout was $1.2 million with average legal costs of $434,000 and crisis services cost of $539,000.

THE TAKEAWAY?

All businesses are targets. When it comes to a cyber breach, it’s not “if;” rather, it’s “when.”

WHAT IS THE GREATEST CYBER THREAT?

Ignorance. When thinking of cyber exposures, what comes to mind are systems failures, and the human element is often overlooked, but according to the Poneman Institute, 35 percent of cyber breaches are due to human failings. Eighty-five percent of office workers, for example, have been duped by social engineering.

Employee ignorance is one risk factor, but ignorance at the executive level is even more disconcerting. Most executives are under the misimpression that cyber risk is an IT problem. Yet, system glitches account for only 29 percent of data breaches, so relegating the responsibility of mitigating cyber risk to the IT department fails to address 70 percent of a company’s vulnerabilities.

“DATA SECURITY IS AT THE FOREFRONT OF FEDERAL ENFORCEMENT ACTIONS."

Executives and insurance brokers alike have assumed that traditional insurance policies, such as comprehensive general liability policies (CGL), provide protection for damages flowing from a cyber breach. This is not necessarily true. For instance, in Zurich American Insurance Company v. Sony Corporation of America, Sony sought coverage under its Zurich’s CGL policy for theft of customer personal information by online hackers. Zurich filed a declaratory relief action requesting a ruling that the data breach did not qualify as bodily injury or property damage. Sony countered that the breach fell within the purview of the personal and advertising injury provision of the policy. The New York Supreme Court rejected Sony’s position and found that coverage was not afforded. Despite court rulings favoring insurance companies, the insurance industry has responded to cyber breach claims with sweeping policy exclusions that limit or eliminate coverage under traditional policies. The lesson learned is that executives and insurance brokers need to better understand the cyber threats, company vulnerabilities, and insurance
coverages available.

Although the insurance industry has developed new cyber products, market confusion over the scope of coverage exists. Standalone cyber insurance policies are a complex hybrid of first- and third-party coverage. Because risk is ever-evolving, there are gaps in coverage. This is further complicated by statutes and regulations, inconsistent case law, and procedural peculiarities throughout the United States. Business executives, insurance brokers, underwriters, and claims professionals need to understand technology and the risks it presents, need to know coverage forms and how to analyze cyber applications, and know how regulatory actions and third-party claims trigger coverages.

WHY IS THE LEARNING CURVE SO STEEP?

Technology is rapidly changing, hackers are becoming more sophisticated, and the laws are constantly evolving. Every day hundreds of new apps hit the market. The pending technology patent applications alone evidence the ongoing technology revolution. Real-time client/customer data compounds the problem. While most executives and risk managers profess to understand technological basics, most acknowledge that they have no understanding of the complex security controls used to protect information security systems.

Conversely, hackers have embraced the technology revolution and continue to develop more sophisticated tactics to prey upon people’s trusting nature. Spoofed emails lead users to visit infected websites designed to appear legitimate. Secretly installed spyware then tricks users into divulging personal information such as credit card numbers, passwords, and social security numbers. Hackers are leveraging social media to learn personal details about targeted individuals and then carefully crafting emails to trick employees to turn over valuable data and give access to bank accounts.

Federal and state governments have enacted privacy laws to protect personal information. Congress has passed privacy legislation that governs virtually every industry, from health care to education to the financial sector, but they are complex and difficult to understand. Similarly, federal agencies that have regulatory authority over particular business sectors have promulgated rules and regulations and have increased their regulatory enforcement, seeking fines and penalties. The Federal Trade Commission has been emboldened by a recent Third Circuit opinion in FTC v. Wyndham World Wide Corporation, in which the FTC sued the hospitality company and three subsidiaries, alleging that data security failures led to three data breaches at Wyndham hotels in less than two years. The Third Circuit held that the FTC has the authority to regulate cybersecurity, opening the floodgates to regulatory actions. For example, on February 3, 2016, an administrative law judge ruled in favor of the Office of Civil Rights and levied $239,800 in sanctions against a health care provider for HIPAA violations, showing that data security is at the forefront of federal enforcement actions.

Currently, 47 states have enacted breach notification laws and all 47 mandate notification to individuals whose personal information may be compromised—but key differences do exist. Fifteen states require notification to governmental agencies and 27 states require notification to national credit reporting agencies. Couple this with complex third party litigation, and executives, risk managers, and claims professionals are experiencing information overload.

RIGOROUS TRAINING AND EDUCATION IS MISSION CRITICAL TO MITIGATING THE COST OF CYBER BREACHES.

Cyber risk mitigation poses unique challenges, from adopting best practices in proactive defense against breaches to maintaining appropriate cyber insurance and the management of cyber breach claims. Cyber risk education has typically been segmented and general. What is missing in the cyber education arena is an integrated program.

The Claims and Litigation Management Alliance’s School of Cyber Claims is the first of its kind in that the three-year program has a rigorous curriculum integrating technical, legal, and insurance courses with real world scenarios. The school was specifically designed to provide participants with technical and practical knowledge to proactively and effectively manage cyber claims arising under traditional insurance policies and stand-alone cyber insurance policies. The program will cover the unique security risks associated with mobile computing, teleworking, and cloud and website technologies. Students will learn about authentication, intrusion, detection, and prevention techniques such as biometric encoding, security socket layers, firewalls, virus protection, and cryptography. With this solid technical foundation, the program provides an in-depth analysis of costs and damages arising out of first-party claims and third-party claims, coverage litigation of insurance policies, and the practical implications for cyber claims handling and coverage analysis.

The school’s faculty comprises cyber insurance and risk management industry leaders, whose experience and innovative curriculum arm the students with the tools necessary to evaluate, interpret, and apply traditional insurance policies, cyber insurance policies to claim scenarios, along with the skills to proactively and cost-effectively manage those claims.

Related Articles

A Startup Accelerator Program Sets Cuatrecasas Apart


by Best Lawyers

Miguel de Almada and Frederico Bettencourt Ferreira from the Portuguese firm discuss their 2019 "Law Firm of the Year" award for Litigation and Arbitration.

Cuatrecasas "Law Firm of the Year"

Opening Pandora's Box in Portuguese Tax Law


by Best Lawyers

Diogo Ortigão Ramos discusses Cuatrecasas' 2019 "Law Firm of the Year" award for tax law in Portugal.

Cuatrecasas Law Firm of the Year Interview

The Litigation Finance Mass Tort Gold Rush


by Justin Smulison

Third-party litigation funding is transforming mass torts, propelling the high-risk area into a multi-billion-dollar industry

Gold coins with data chart backdrop

IN PARTNERSHIP

Trial Lawyers Fight to Protect Individuals from Abuse


by Esquire Bank

With Esquire Bank's financial support, Elise Sanguinetti was able to challenge and end the Forced Arbitration Act. Her legislation continues to help other trial lawyers attain justice for abuse survivors.

Lawyer Elise Sanguinetti Fights to Protect People from Abuse

Combating Nuclear Verdicts: Empirically Supported Strategies to Deflate the Effects of Anchoring Bias


by Sloan L. Abernathy

Sometimes a verdict can be the difference between amicability and nuclear level developments. But what is anchoring bias and how can strategy combat this?

Lawyer speaking in courtroom with crowd and judge in the foreground

Tampa Hospital Suffers Recent Data Breach


by Gregory Sirico

Tampa General Hospital, a non-profit research based medical center, suffered a sizeable data breach that put 1.2 million patients' information at risk.

Laptop reading hacked with translucent medical model in foreground

Protecting Small Business Owners: Trial Experts Connick Law LLC Notoriously Successful with Fire Litigation


by Justin Smulison

When small business owners become the target of insurance companies in fire-related lawsuits, hiring a firm with a reputation for understanding the science of fire suppression trials can save their livelihoods.

Gold Indoor Sprinkler Heads on Red Background

Will Recent Boeing Settlements Create Tailwinds In Corporate Law?


by Justin Smulison

Prominent litigation against Boeing is setting a precedent of accountability, professionalism and commitment among company boards as well as ushering ESG further into the courtroom to help monitor and prevent safety issues.

Recent Boeing Settlements and Corporate Law

Colorado's Best Lawyers 2022


by Best Lawyers

Our 2022 Colorado's Best Lawyers publication features top-ranked legal talent in Boulder, Denver and Western Colorado.

Colorado's Best Lawyers 2022

Newly Launched COVID-19 Litigation Project Offers Open Access To Pandemic-Related Court Judgments From Over 70 Countries


by Sara Collin

A worldwide database of COVID-19 cases is uniting more than 70 countries as judges, lawmakers and lawyers continue to navigate pandemic related litigation and the ways in which it’s evolving amid year three.

COVID-19 Worldwide Litigation Project

Look for the Zoom Label


by Anne R. Yuengert and Matthew C. Lonergan

Will the virtual platforms that got such a boost during the pandemic replace how you interact with your employees, unions, and lawyers?

Virtual Platforms Replacing Work Interactions

Discovery in the Time of COVID-19


by H. Barber Boone

The pandemic has affected the vital process of legal discovery in ways both good and bad. Which changes are likely to become widely accepted in the years ahead?

The Impact of COVID-19 on E-Discovery

Busting a Trust


by Joseph Marrs

The rules governing trusts and asset distribution are often much more flexible than many might assume. Here’s a primer.

Rules Governing Trusts and Asset Distribution

The Next Chapter


by Patrick M. Shelby

Among its uncountable other disruptions, the pandemic upended U.S. bankruptcy procedures. Congressional relief, legislative changes, amended legal provisions: What lies ahead for those looking to file?

COVID-19's Impacts on Bankruptcy Procedures

Phoning It In


by Alyson M. St. Pierre, Ashley C. Pack, and Crystal S. Wildeman

It’s not easy for employers to weigh requests from employees to work from afar, even in the wake of the pandemic. Considerations include COVID-19, vaccinations, the Americans with Disabilities Act and the nature of the job itself.

Employer Considerations for Teleworking

Compelled to Compete


by Ashish Mahendru

Courts and legislatures—and now the White House—are taking an increasingly dim view of noncompete employment agreements, a development the pandemic has quickened. What can employers do to protect their confidential information?

Protection for Employers Beyond Noncompetes

Trending Articles

2025 Best Lawyers Awards Announced: Honoring Outstanding Legal Professionals Across the U.S.


by Jennifer Verta

Introducing the 31st edition of The Best Lawyers in America and the fifth edition of Best Lawyers: Ones to Watch in America.

Digital map of the United States illuminated by numerous bright lights

Unveiling the 2025 Best Lawyers Awards Canada: Celebrating Legal Excellence


by Jennifer Verta

Presenting the 19th edition of The Best Lawyers in Canada and the 4th edition of Best Lawyers: Ones to Watch in Canada.

Digital map of Canadathis on illuminated by numerous bright lights

Legal Distinction on Display: 15th Edition of The Best Lawyers in France™


by Best Lawyers

The industry’s best lawyers and firms working in France are revealed in the newly released, comprehensive the 15th Edition of The Best Lawyers in France™.

French flag in front of country's outline

Announcing the 13th Edition of Best Lawyers Rankings in the United Kingdom


by Best Lawyers

Best Lawyers is proud to announce the newest edition of legal rankings in the United Kingdom, marking the 13th consecutive edition of awards in the country.

British flag in front of country's outline

Announcing the 16th Edition of the Best Lawyers in Germany Rankings


by Best Lawyers

Best Lawyers announces the 16th edition of The Best Lawyers in Germany™, featuring a unique set of rankings that highlights Germany's top legal talent.

German flag in front of country's outline

Celebrating Excellence in Law: 11th Edition of Best Lawyers in Italy™


by Best Lawyers

Best Lawyers announces the 11th edition of The Best Lawyers in Italy™, which features an elite list of awards showcasing Italy's current legal talent.

Italian flag in front of country's outline

Combating Nuclear Verdicts: Empirically Supported Strategies to Deflate the Effects of Anchoring Bias


by Sloan L. Abernathy

Sometimes a verdict can be the difference between amicability and nuclear level developments. But what is anchoring bias and how can strategy combat this?

Lawyer speaking in courtroom with crowd and judge in the foreground

Things to Do Before a Car Accident Happens to You


by Ellie Shaffer

In a car accident, certain things are beyond the point of no return, while some are well within an individual's control. Here's how to stay legally prepared.

Car dashcam recording street ahead

The Push and Pitfalls of New York’s Attempt to Expand Wrongful Death Recovery


by Elizabeth M. Midgley and V. Christopher Potenza

The New York State Legislature recently went about updating certain wrongful death provisions and how they can be carried out in the future. Here's the latest.

Red tape blocking off a section of street

Find the Best Lawyers for Your Needs


by Jennifer Verta

Discover how Best Lawyers simplifies the attorney search process.

A focused woman with dark hair wearing a green top and beige blazer, working on a tablet in a dimly

Prop 36 California 2024: California’s Path to Stricter Sentencing and Criminal Justice Reform


by Jennifer Verta

Explore how Prop 36 could shape California's sentencing laws and justice reform.

Illustrated Hands Breaking Chains Against a Bright Red Background

Key Developments and Trends in U.S. Commercial Litigation


by Justin Smulison

Whether it's multibillion-dollar water cleanliness verdicts or college athletes vying for the right to compensation, the state of litigation remains strong.

Basketball sits in front of stacks of money

Is Premises Liability the Same as Negligence?


by Jeremy Wilson and Taylor Rodney Marks

In today's age, we are always on the move, often inhabiting spaces we don't own. But what happens when someone else's property injures you or someone you know?

A pair of silhouetted legs falling down a hole with yellow background

Woman on a Mission


by Rebecca Blackwell

Baker Botts partner and intellectual property chair Christa Brown-Sanford discusses how she juggles work, personal life, being a mentor and leadership duties.

Woman in green dress crossing her arms and posing for headshot

Best Lawyers Celebrates Women in the Law: Ninth Edition


by Alliccia Odeyemi

Released in both print and digital form, Best Lawyers Ninth Edition of Women in the Law features stories of inspiring leadership and timely legal issues.

Lawyer in green dress stands with hands on table and cityscape in background

Beyond the Billables


by Michele M. Jochner

In a recently conducted, comprehensive study, data reveals a plethora of hidden realities that parents working full-time in the legal industry face every day.

Women in business attire pushing stroller takes a phone call