How do cyber breaches effect you?
This question is asked often, which is why we wanted to do a mini case study for our readers. In this example, we are going to look at the Home Depot breach and discuss the ongoing implications.
Most corporate directors and officers are aware of some of the cyber breaches that have occurred over the last couple of years. In Home Depots case 50 million customer records were stolen form the system causing a significant impact on their business. Following the breach various lawsuits followed against the company for breach of privacy. What we want to highlight is the derivative suit that followed the breach.
What is a derivative suit? A derivative suit is a lawsuit brought by shareholders on behalf of the corporation. In this case the shareholders are claiming there was a breach of duty and waste of corporate assets by certain company officers and directors.
Why is this relevant? The shareholders allege the directors and officers of Home Depot knew the company's systems were vulnerable and failed to act. In this case several warnings signs should have been acted upon prior to the breach?
Now what? The first question a director or officer might ask is "how does my insurance respond"? In this case, it is important to understand a director and officer’s liability may respond differently to consumer protection laws and deny coverage in this situation. A commercial general liability policy will exclude electric data as cyber products have been developed to pick up this exposure. A cyber policy will generally contain language such as "warranties" or "subjectivities" which require basic security steps be taken to prevent a breach.
As you might now be understanding there are several factors to take into consideration when considering the implications of a cyber event. Adequate protection for the directors and officers may be used up as more people look for defence under the policy of the corporation. This can leave directors and officers personally liable for lawsuits against the corporation.
The Take Away: Make sure you work with a professional team when purchasing insurance for your business. A specialist is better than a generalist and can give advice that will provide tremendous value before, during and after a claim.
What do you think?
The Base Team
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