Data Breach: Is It Covered by Insurance?

Posted by Jeanine Gagliardi on Wed, 11/06/2013 - 05:00

We previously posted about a grocery chain that was sued for a data breach that compromised its customers’ credit and debit card information. The grocer has agreed to a settlement without a trial. In the settlement, the grocer agreed to, among other things:

(1) pay customers a flat fee for each credit or debit card that was used to make a fraudulent charge;

(2) reimburse customers for some out-of-pocket expenses, such as bank fees; and

(3) pay the customers’ attorneys’ fees.

The settlement agreement is now pending approval from the court.

At the same time that it was embroiled in the data breach lawsuit with its customers, the grocer was sued by its insurer. The insurer sought a judgment declaring that the grocer’s liability policy did not cover the data breach. The insurer contended that the policy covered only physical damage, not the loss of an “intangible” like data.

The insurer recently dismissed its claim. The dismissal paperwork does not give the reason why, but the grocer has made representations that the two have agreed to discuss an alternative resolution of the insurance coverage dispute. If they are not able to agree upon a resolution, the insurer can re-file the lawsuit.

This case is likely to be settled out of court. If it is, it will not result in a judgment that could give businesses guidance in handling similar situations. The grocer’s tale serves as a lesson for all businesses that deal with customers’ personally identifying information. The important points are that businesses are subject to liability for data breach, and general insurance policies may or may not cover such liability. Each company should read the fine print of its policy and assess its need for additional coverage.

Our firm assesses and pursues claims for insurance coverage. If you have any question about the scope of your coverage or any related issue, feel free to give us a call.

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