What does cyber liability insurance cover?

First-party cyber liability insurance covers the costs of a data breach or cyberattack at your business, such as:

• Hiring an expert to investigate the breach and assist with regulatory compliance
• Notifying customers about the breach
• Crisis management and public relations
• Business interruption expenses, including hiring additional staff, renting equipment, or purchasing third-party services

Third-party cyber liability insurance covers your legal costs if a client blames you for a cyberattack or data breach at their business and sues. This type of coverage is typically included in an errors and omissions policy. It could help cover:

• Attorney's fees and other legal defense costs
• Judgments if a court finds your business liable
• Out-of-court settlements

Example: An IT consultant recommends a web service to a client that later turns out to be insecure. A data breach exposes the client's data, and the client sues the IT consultant for recommending the service.

Cyber liability insurance pays for the consultant's legal defense, as well as settlement or judgment costs.

Any business that stores data online or operates a website is susceptible to cyberextortion. This happens when a criminal hacks into a business, steals data or disables systems, and then demands payment to restore it.

Example: An employee at a software development company accidentally opens an email containing a malicious computer virus. The virus encrypts crucial data and demands a ransom for its retrieval.

Cyber liability insurance reimburses the software developer for the ransom and the cost of hiring an expert to investigate the attack.

Cyber liability insurance protects your business when a client blames you for failing to prevent a cyberattack.

However, it doesn't provide protection against other allegations of negligence. Errors and omissions insurance (E&O) covers the costs of lawsuits over negligent actions and other mistakes.

Example: A web developer fails to meet the deadline for building a website for an e-commerce business. The e-commerce business sues the developer for missing the deadline to recoup lost profits from the delay. The developer's E&O policy helps cover the resulting legal expenses.

Errors and omissions insurance also covers the costs of lawsuits over breaches of contract.

Example: A digital marketing agency signs a contract to redesign several websites for a client. Shortly after signing the contract, the agency loses two key employees and is left with more work than it can handle.

The client files a lawsuit against the agency for breach of contract. The agency's E&O policy covers its legal expenses and the resulting judgment.