September 26, 2014 Articles

Coverage Disputes Arising from Cyber Claims

When businesses first began to use the Internet more widely, the potential exposure they faced by doing so was far from clear--now we know better

by Carrie E. Cope and Ian Reynolds [1]

When businesses first began to use the Internet more widely, the potential exposure they faced by doing so was far from clear. It was as if corporate boards, business owners, company managers, and their consultants were standing at the edge of a glistening sea on a hot day—the water looked incredibly inviting. Although we could not accurately gauge the depth of the water, those excitedly jumping in on either side of us made even the most cautious among us apprehensive that we might be missing out on lucrative opportunities if we did not make the leap ourselves. Disregarding any trepidation, we jumped—high into the air, hitting the water with as much of a maximum impact as we could muster. Most of us jumped without life preservers. Now we know better.

The High Cost of Cybercrimes

The financial benefits we expected would flow from having a technologically connected society have come to pass. Studies estimate that the Internet economy generates between $2 trillion and $3 trillion annually, a share of the global economy that is expected to grow rapidly.[2] What cannot be ignored, however, is that cyber crime extracts between 15 percent and 20 percent of the total monetary value created by the Internet.[3] Crawford & Company’s white paper entitled The Future of Cyber Insurance confirms that 2013 has been the worst year for data breaches thus far, with an estimated 740 million data files viewed or stolen around the world.[4] Moreover, the first half of 2014 has not shown an improvement in data breach statistics. As of August 12, 2014, the Identity Theft Resource Center reports there have been a total of 470 data breaches, resulting in approximately 11.5 million records exposed.[5] Of those figures, 43.4 percent of the total breaches occurred in the medical/health care field (accounting for 18.7 percent of total records compromised), and 34.3 percent of total breaches arose in the business field (accounting for 56.3 percent of total records compromised).[6]

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