Category Archives: Other

Cyber Liability CGL versus Specialized Cyber Liability Coverage

Let’s face it….we live in a world of technology. GOOD technology. The only way to effectively protect the assets of your business is to carry adequate Commercial General Liability (CGL) Insurance coverage. A CGL policy protects your business from damages caused by bodily injury or property damage for which your business is found to be legally liable. CGL is usually triggered first in the event of a loss, so many business owners don’t feel an additional endorsement or stand alone policy is necessary.

A typical CGL policy contains three coverages:

  1. A.    Bodily Injury and Property Damage Liability (BI/PD) – the duty to indemnify and defend the insured for claims made due to bodily injury or property damage.
  2. B.    Personal and Advertising Liability (AI/PI) – same framework as Coverage A, except it insures claims for personal injury and advertising injury.
  3. C.    Medical Payments – insurer promises to pay emergency medical expenses for bodily injury for the uninsured or its employees as a result of an accident on the insured’s premises. It pays regardless of who is at fault.

Coverage B for Intangible Assets

If the threat exists that a) your company could be sued by a competitor for infringement or intellectual property theft, or b) you do not have the funds to cover legal fees associated with defending your patent or trademark, it is vital that you purchase this coverage. Defending infringement litigation can cost hundreds of thousands of dollars, not including the cost of damages and prejudgment interest. In patent infringement cases, attorney’s fees can easily top $1 million. Budgeting and planning for the protection of intellectual property rights may not only save your company a significant amount of capital, it may also help keep your business viable when legal bills accumulate rapidly.

Any act by the insured that somehow violates or infringes on the rights of others (referred to in the policy as an offense) is the subject of personal and advertising injury liability coverage, although only those acts that are specifically listed in the policy are covered. The coverage under the “advertising injury” provision is limited to those injuries that are directly related to the advertisement. Therefore, the policy covers debts owed by the insured party due to claims filed against it.

Coverage B policyholders are sometimes covered in cases relating to trademark infringement; however, copyright claims are only successful where they are directly related to advertising, and patent claims are rarely covered under the “advertising injury” provision. The cases which allow for coverage in a patent infringement case are generally limited to instances in which a court finds contributory infringement or inducement to infringe through an advertising medium. Since the “advertising injury” provision in a standard CGL is rather limited, many businesses consider additional coverage to protect their intangible assets.

There are three important exclusions in the AI/PI coverage that outline the need for additional intangible asset coverage:

  1. Excludes AI/PI arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.
  2. Excludes AI/PI committed by an insured whose business is: (1) Advertising, broadcasting, publishing or telecasting; (2) Designing or determining content of websites for others; or (3) An Internet search, access, content or service provider (ISP).
  3. Excludes AI/PI arising out of an electronic chat room or bulletin board the insured hosts, owns, or over which the insured exercises control.

There will be a large coverage gap in a traditional CGL policy if you are a media company, technology company or any other company that does business predominantly on the Internet.

Specialized Cyber Liability Coverages

Because of the increase in the number of a) intangible assets companies possess and b) the number of companies doing business on the Internet, new types of liability coverages have emerged to meet specific needs.

Errors & Omissions (E&O)

E&O insurance, also known as professional liability insurance (PLI), helps fill gaps in traditional CGL policies by protecting professional advice- and service-providing companies from having to bear the full cost of defending against a negligence claim that a service the company provided did not have the expected or promised results.

An E&O policy can cover intellectual property losses due to copyright infringement and plagiarism while also protecting a business in case of a data breach or identity theft. For example, if an IT specialist at a company makes a mistake with the company firewall and allows malware to spread through the company’s network, an E&O policy would help cover the company’s losses from the exposure.

An E&O policy can be customized with several other coverages, such as:

  • Electronic Data Loss – A fire or virus could lead to a business losing all of its data. An electronic data loss policy covers against this data loss and helps replace any income a business loses as a result of the loss.
  • Data Breach – This coverage is becoming more popular as the number of expensive data breaches increases around the globe. Data breach coverage can help a business cover the costs of customer notifications and any defense costs associated with the breach.
  • Media Liability – This coverage protects media-related firms from claims arising from defamation, invasion of privacy, plagiarism, copyright infringement, etc.

Directors & Officers (D&O)

A D&O policy insures upper management against claims of securities fraud, breach of fiduciary and other types of liability. For example, shareholders of a company could sue a company’s directors and officers for not putting the proper measures in place to stop a data breach.

Claims Made vs. Occurrence Policies

When purchasing CGL and cyber liability coverage, businesses have two primary policy types to choose from—claims made and occurrence. A claims made policy covers claims while the policy is in force, while an occurrence policy provides coverage for when the act occurred. Both types offer distinct advantages and disadvantages, so it is wise to do research to determine the best type of policy for your business.

  • Cost – Claims made policies are generally cheaper than occurrence policies. Premiums for claims made policies start low but increase each year to reflect the increased likelihood for claims in the future. While occurrence policies are generally more expensive, there is only a one-time cost with no additional fees.
  • Selecting coverage – With a claims made policy, coverage limits are easier to choose because they can be increased annually. You run the risk of being underinsured with an occurrence policy because the coverage you selected 10 years ago might not be able to cover expenses from a claim made today.
  • Pre- and post-coverage options – You will need to purchase “nose” and “tail” coverage with a claims made policy because if you are sued in 2006 for services provided in 2004, you will only be covered if your policy has an Extended Reporting Period (ERP), or “tail” coverage. Tail coverage can be expensive, but it is often included for free if you have been insured with the same company for a certain amount of time or it can also be offered as an incentive for switching to another company. Similarly, a “prior acts” endorsement, or “nose” coverage is needed when switching insurers to cover claims that occurred before the new policy was purchased. With an occurrence policy, no nose or tail is needed. It is easier to change insurance companies with an occurrence policy because no pre- or post-coverage endorsements are necessary.
  • Long-term protection – An occurrence policy will give you better long-term protection because you are insured from a claim no matter how long after the event the claim was made. For example, if a software company was sued for a security problem in one of its programs that led to a customer suffering a data breach 5 years after the product was released, the software company would be covered by the occurrence policy in place at the time of the breach.


Trust Us to Protect Your Intangibles

Here at Texas Associates Insurors, we know insurance can be complicated and confusing. Contact us today. We can help you navigate the complex cyber liability insurance world and discuss the coverages you need to protect your business from cyber risks.

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Get in the Game!

In three weeks every one of you will be able to speak your peace about what is going on in Washington as well as your own community.  Election day is Tuesday November 2, 2010 and should be underlined on every calendar in America.  Regardless of your political affiliation, exercising your right to vote is one of the great privileges we enjoy in this great country.  Sadly, less than half of the registered voters participate in federal elections, with that number being even lower for local races.

There are some significant issues facing our country and our local communities.  At Texas Associates we encourage the members of our team to not only vote in each and every election, but to get involved with a candidate or cause.  A true representative democracy can only exist when the people not only voice but exercise their feelings and beliefs on election day.  Researching, identifying then voting for your choice for elected leadership is something we all should embrace.

So this November 2, get in the game.  Exercise your right to vote, and make a difference in Washington and at home.

Partner Named to Dripping Springs Chamber of Commerce Board

Congratulations to Chris Heinchon! He’s been elected to the Board of Directors for the Dripping Springs Chamber of Commerce.  Chris starts his 3 year term on January 1, 2011.

Chris Heinchon, CIC, CRM, CWCA is a partner and risk advisor with Texas Associates Insurors in Austin. Chris works with high-risk businesses to manage risk management and insurance programs and implement proactive strategies to reduce injuries and claims.

Serving Others

Daily the Team at Texas Associates takes care of requets from clients, solves problems, and acts as an advocate for them as they manage the risk associated with their business and family.  It is what we do, and the way in which we do it differenciates us from other agents and brokers in our community. 

However, embedded in our corporate culture is a desire to serve others as well.  Whether it is at our kid’s school, in our community, Rotary, little league, or church each member of our team is challenged with finding something they are passionate about, and then get involved at some level.  

In today’s litigious society, if you choose to be involved in non-profit or charitable causes, take a minute to access the risk that you may have personally or corporately.   Our firm provides Directors & Officers Insurance to non-profit organizations, and we challenge our clients to ask the organizations they serve whether insurance is in place to protect their interest.  At a minimum consider the following when being ask to serve on a board of directors:

  • Prior to joining ask for a certificate of insurance showing the type and limits of insurance in place for the organization.
  • Determine a minimum limit of liability you would like for that organization to maintain that would adequately protect your interest.  Many set $1,000,000 as a minimum limit for D&O Insurance.
  • Ask the organization if they have had any D&O claims in the past and if those claims were covered by insurance.
  • Consult with your insurance professional to determine if your personal umbrella policy has protection for outside directorship.
  • If you are serving at the request of your business, check your corporate D&O policy to see if outside directorship coverage is provided.

In the past, none of the above questions needed to be asked, and franklky were probably seen as secondary to helping a worthy cause.  The reality is, many non-profit organizations have had to cut back their budgets, which in some cases has meant limiting insurance.  Serving others is an obligation all of us have to our community.  Making sure we are adequately protected for that service is an individual responsibility.