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Cyber liability insurance: Don't run a business without it

By Darren Caesar, senior executive vice president, HUB International, special to Network World
July 02, 2010 12:12 PM ET
This vendor-written tech primer has been edited by Network World to eliminate product promotion, but readers should note it will likely favor the submitter's approach.

Network World - You wouldn't go into a blizzard without a coat, scuba dive with a hungry shark or bungee jump without measuring the cord. Yet, according to the 2009 FBI Computer Crime and Security Survey, 71% of American companies endanger their financial stability by not having insurance that will cover Internet liability.

Almost every company has some kind of network, database or online presence that puts it at risk for litigation. If you have Web site content, your company can be targeted for violating copyright or intellectual property laws. A company laptop that is stolen or left in a taxi can launch a long and costly nightmare involving theft or extortion. A rogue employee posting on a blog, social media page or discussion forum can make your company liable for slander or defamation. Personal and financial information of customers sits on your servers or at a data store, daring hackers to get in and party.

Sound fun yet? There's more. Add to that recent federal regulations requiring customers to be notified in the event of data compromise, and there's plenty to keep you awake at night. More than ever, it's vital to make sure your company is protected.

Most standard business insurance policies include general liability, which protects the policyholder in case of a suit resulting from injury or property damage. If you sell your product to a company whose employee becomes injured as a result, you're covered. But if you sell that company software or forward an e-mail with a virus that damages records or allows a data breach, traditional insurance policies rarely offer adequate protection.

The current Web 2.0 climate means increased communication and data-sharing across the Internet, widening opportunities for commerce, education and new business relationships. The current trend toward outsourcing Web-hosting, credit card processing, call centers, document storage and data warehousing creates a web of convenient partnerships. But with sensitive information out of your complete control, opportunities are riper than ever for error, negligence or cyber crime, damages from which are seldom covered by traditional insurance.

If you think you're covered by your current business insurance policy or that of a business partner, you may be unpleasantly surprised. In fact, if you read the fine print, such damages are often specifically excluded.

The following are among all-too-common scenarios for which you can be held liable:

* If you pass along a virus or other type of malware, even unknowingly, especially if another company's customer information is then compromised.

* If one of your employees gains unauthorized access to another company's information or if confidential information is disclosed or misused.

* If an employee knowingly or unwittingly slanders another company in a blog, e-mail, or in a social media or forum post, or infringes on copyrighted material.

* If you do not follow federal or state regulations controlling notification of customers whose personal data has been compromised.

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