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What Legal Language Should I Look Out for When Selecting Cyber Insurance?
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Richard F.
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Richard F.,
User Rank: Apprentice
10/7/2020 | 11:32:17 PM
Subtle Danger - Disasterous Consequences
Even more dangerous is the trend of increasing numbers of insurers, especially foreign insurers, to insert unexpected arbitration and choice of law provisions.  Many businesses do not read or fully understand the entire policy, including the "fine print." Insured businesses only discover when coverage is denied or disputed, coverage disputes are not resolved locally in their state court, by state judges knowledgible about the businesses own state insurance laws. 

Instead those businesses are often forced into very expensive arbitrations in distant states, under another state's laws, or even required to assert their claims in foreign countries with that country's laws controling the arbitration process. The arbitrators are often insurance industry insiders, frequently active or former officers or directors of insurance companies or reinsurance companies. Many experienced policyholder attorneys advise rejecting any insurance that tries to impose arbitration, or foreign law, especially if the place of arbitration "venue" is not in your home state.

Yes, it can be very difficult to obtain higher limits of coverage, or to assemble a reasonable insurance tower and avoid arbitration. After 40+ years as an arbitrator and counsel in arbitrations, I can assure you it is well worth taking the time to obtain the right coverage.

The officers and directors of any business considering an insurance policy that has arbitration or choice of law provisions or foreign venue provisions must ask, "Can our business afford to pay the cost to retain local attorneys, and New York attorneys or London barristers as counsel, and to also pay the expenses of 3 arbitrators and the costs of hearings in New York, Hamilton, Bermuda, London, England etc.?"

My Jesuit instructors used to advise, "If you can not be a good example, at least serve as a horrible warning."

Hurricane Katrina destroyed some of my clients' Louisiana businesses.  Multiple layers of insurance refused to pay and disputed coverage. As an example, the deposit for each of 4 separate arbitrations averaged USD $250,000.00.  While my clients had a destroyed major building and no ability to conduct business, they had to raise approximately USD $1,000,000.00 to simply start the arbitrations. Then they also had to pay for teams of lawyers and half of the cost of 12 arbitrators each charging $750 to $1,000.00 an hour to argue about whether coverage existed under New York and English insurance law. OThe contractually stated venue for one arbitration was Hamilton, Bermuda.  The remaining three arbitrations were contractually required to be held in London, England.   

BEFORE buying cyber insurance, consult a knowledgible policyholder lawyer, and a good insurance broker. If you do not, you may be in for a very rude and expensive education.  IF your business even survives.

 

 


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