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Third-party cyber liability insurance

Third-party cyber liability insurance provides liability coverage for businesses, including tech companies, that handle other people’s sensitive data.

What is third-party cyber liability insurance?

When a client shares its sensitive data with another company, the client expects that company to keep the data safe. If the company fails to prevent a data breach or cyberattack, it could face a lawsuit.

Third-party cyber liability insurance provides liability protection for companies that fail to prevent a data breach or cyberattack at a client's business. This policy covers the legal costs of a cyber liability lawsuit, including any settlements or judgments.

Who carries third-party cyber liability insurance?

Any companies that work with sensitive client data are vulnerable to lawsuits and benefit from third-party cyber liability insurance. This includes a client’s customer data or proprietary information.

Tech companies, financial institutions, healthcare companies, and online retailers fall into this category.

Most tech companies work with client data in some capacity and are therefore vulnerable to devastating cyber liability lawsuits that can compromise their finances and their reputation. As a result, third-party cyber liability insurance is almost always part of a tech company’s errors and omissions insurance.

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What does third-party cyber liability insurance cover?

Third-party cyber liability insurance helps companies minimize the financial impact of a data breach or cyberattack on a client. It often covers:

  • The cost of hiring an attorney to defend your company
  • Settlement costs (to resolve a lawsuit amicably)
  • Court-ordered damages (if you’re found liable)
  • Costs of responding to regulatory inquiries
  • Government fines and penalties

Cyber liability policies are constantly evolving in response to new threats, so there’s no standard package for third-party liability coverage. If you’re considering adding cyber liability coverage to your errors and omissions policy, be sure to ask your insurance agent exactly what the policy covers.

How does it differ from first-party cyber liability?

Third-party cyber liability insurance covers the cost of cyber liability lawsuits filed by clients. First-party cyber liability insurance covers the cost of a data breach or cyberattack on the company that carries the policy.

First-party cyber liability insurance covers costs such as:

  • Cyberextortion
  • Customer notification
  • New credit monitoring services or anti-fraud protections
  • Crisis management
  • Costs of mounting an investigation into the attack

Read more about first-party vs. third-party cyber liability insurance.

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