You’ve convinced a customer they need cyber insurance. You have several markets. The question is, which one is best for this customer? Let’s say you’ve narrowed it down to two carriers and their respective forms:
Form X clearly appears to define potentially ambiguous terms and words and the nature of the coverages provided, but the result is limited coverage.
Form Y has what appear to be very ambiguous terms and definitions that are open to interpretation for or against coverage.
Beyond researching case law specific to that coverage in that state, and beyond the carrier providing clarification in writing, is there any precedence you can reliably count on to suggest to the insured the ambiguities will work in their favor resulting in broader coverage? Or can the precedence work the opposite way?
Is there a resource you can use specific to the cyber exposure? According to one consultant, this is a huge issue in cyber because some firms appear to be purposely writing cyber coverages so ambiguously that it could be interpreted any way.
The following is one of the discussions about “ambiguity” from my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes” (pp. 102-126). One of the examples below is a cyber policy that excluded any loss that arose from a failure to follow “industry standards.”
According to Wikipedia, a “weasel word” is an informal term for word or phrase “aimed at creating an impression that a specific or meaningful statement has been made, when instead only a vague or ambiguous claim has been communicated.” For our purposes, I use the term “weasel word” to represent a special class of lexical (semantical) words or phrases that are almost inarguably ambiguous. Examples from actual claims I’ve consulted on include:
- A homeowners policy was endorsed to exclude “farm-like” A two-story storage building burned and the claim was denied on the basis that it was a “barn” though it was not used in any way to store farm products or equipment or house farm animals. It seems highly unlikely that a court would ever find such a vague term to be unambiguous.
- A homeowners policy limited coverage for personal property to property “usual to the occupancy as a dwelling” but according to an adjuster with five months experience, that did not include a washer, dryer, or freezer. The adjuster’s supervisor overrode the denial, but how many other denials went uncontested?
- The current ISO CGL policy, in the definition of “coverage territory,” includes “the activities of a person whose home is in the territory described in Paragraph a. above, but is away for a short time on your business….” What constitutes a “short time”? Case law is mixed. While some courts (other than the Arizona Supreme Court in the aforementioned Federal Ins. Co. v. P.A.T. Homes, Inc. case) say that variations among interpretations by courts is not evidence that a term is ambiguous, under the same factual circumstances I continue to wonder why that is.
- A cyber policy excluded coverage for hacking if the insured’s technology systems were not up to “industry standards,” a term not defined or even hinted at in the policy. While a court [citation omitted] upheld this language under the specific facts of the case (probably because the insured had absolutely no virus protection, something that is probably a minimum requirement of any industry standard on security), it’s not hard to see how this phrase could be considered ambiguous under a different loss scenario.
What constitutes a “farm-like” structure? Is there more than one reasonable interpretation of that? Almost certainly. What type of property is “usual to a dwelling”? How soon do you have to return from a trip for it to have been one for a “short time”? In a cyber policy, what would be an “industry standard” practice required as a condition of coverage? I can’t imagine any of these terms holding up to judicial scrutiny in all claims as an unambiguous term, yet “weasel words” like this sometimes occur in standardized forms and often occur in nonstandard forms.
Why would an insurer use “weasel words”? Some would say the use is intentional so that the insurer can use vague terms to deny coverage, a form of intentional ambiguity known as “tergiversation.” I’d like to think that more often words like this are used because the author lacks skill or experience in policy drafting.
In the next chapter, we’ll explore another variety of “weasel” words.
Going to court is a crap-shoot for both sides, particularly for forms like these. Nobody wants to spend potentially several years having a court decide whether there’s coverage or not while, in the meantime, the insured goes bankrupt. This is illustrated by a recent cyber decision.
Even when policy language appears clear, I’m not sure it really is or how it might be twisted within the context of specific facts. For coverage like this, it might be better to go with programs from reputable providers with a track record of reasonableness.
The International Risk Management Institutes (IRMI) has an excellent white paper on cyber issues. A great source of cyber market information is the Betterley Report, also available from IRMI…her is a free summary report on Rick Betterley’s full cyber report. And here is a market report from Betterley (this is the free summary):
IRMI has a terrific and voluminous comparison of most commercial umbrellas in the marketplace. I believe they have something similar for D&O. It would be nice if they coupled the Betterley report with a more coverage-focused comparison of cyber products (hint, hint).
In my book, I detail that the best way to avoid claim disputes (and court) is to properly insure identified exposures at the outset. However, this process is complicated when you’re dealing with insurance products replete with “weasel words.” From this perspective, a more limited known product might be preferable to an unknown potentially broad OR restrictive product. The latter choice is where the reputation of the provider comes in, along with written coverage clarification and proactive suggestions to improve the language.
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