Are Cyber Attacks an Act of “War” within the Meaning of Liability Policies?

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Authored by attorney Douglas M. Palais

This question cannot be answered definitively at this time, but should be considered carefully by all insurance professionals.

Typical CGL policies exclude acts of terrorism and acts of war. In the past, it was relatively easy to define “war” as hostile military actions by nation states. But today, hostile actions – military and cyber in nature – are being launched with regularity by individuals and groups which may, or may not, be considered as state-sponsored. If such attacks are ultimately considered to be acts of “war,” they are likely to be excluded.

What about coverage questions in D & O and even in some cyber policies? Do directors and officers face potential liability to their companies if there is insufficient cyber coverage?

Some of the factors and challenges to be considered are the following:

  • The U.S. Cyber Command was established in 2010 to conduct cyber warfare operations.
  • Our government and other governments now frequently refer to cyber warfare as the “battlefield of the 21st century.”
  • High-ranking U.S. officials publicly fear a “Pearl Harbor cyberattack.”
  • The cost, frequency and severity of cyberattacks have escalated dramatically.
  • War exclusions in ISO forms were drafted before the age of cyberattacks.

The lesson to be learned is that, as insurance professionals, you should consider carefully the scope of liability coverage for your commercial clients. Discussion and documentation of the scope of coverage will be even more essential than before. If current trends continue, it is likely that cyberattacks will be considered acts of “war” and, without a change in forms, exclusions may eviscerate coverage that your clients thought was in place. E & O claims may surely follow.

This article was featured in the Indepent Insurance Agents of Virginia, Inc March 2015 Newsletter. Click here to read more.

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