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What Is First-Party Liability?

First-party liability is what you're responsible for in your own business. In the context of data breaches, you have first-party liability when a data breach targets your data, exposing the records of your clients or customers. Most small IT businesses have so few clients that they don't have much first-party exposure.

Your clients, however, most likely have greater first-party liability exposures. To manage those exposures, they can purchase first-party Cyber Liability Insurance. Benefits from this type of coverage typically pay for the costs associated with a breach to their customer data, including…

  • Notifying clients that their information was compromised or exposed.
  • Purchasing credit monitoring services for customers affected by the breach or hacking incident.
  • Launching a public relations campaign to restore the reputation of the company affected by the breach.
  • Compensating the business for income it isn't able to earn while it deals with the fallout of the data breach.
  • Paying a cyber extortionist who holds data hostage or threatens an attack.

If your clients don't have Cyber Liability coverage, however, they won't receive compensation from an insurance provider after a data breach. Instead, they'll have to cover the associated costs out of their own assets. To make up for having to pay all that money, they may sue any parties they think are responsible for causing or failing to prevent the breach – and if you provided IT services for them, that list could include your business.

Next: What Is Third-Party Liability?

70% of businesses raise prices or cut hiring when sued