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Down and Out: Internet Outages and Insurance

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If you think the worst thing about an internet outage is no Netflix for a few hours, think again. For businesses increasingly reliant on the internet to conduct business, an outage is a major disruption.

“Every single type of business is impacted by potential internet outages," says Meredith Elkins, partner at Cohen Ziffer Frenchman & McKenna LLP, a law firm based in New York City.

“We're not just talking about retailers who do business online. Any company who has employees working remotely could potentially experience a massive interruption to their daily work if there's an internet outage or if their servers are down, preventing employees from working or blocking communication with key business partners or suppliers," she says.

Even businesses that seem firmly anchored in a physical space, not cyberspace, could be affected. For instance, restaurants still need to “process payments, process payroll and order supplies that they need," Elkins says.

“It's important to walk clients through anything that could potentially shut down their ability to conduct business," she continues. “With all the different products out there, you want to think about how clients use the internet and the potential things that could cause an outage." 

As far as specific coverage solutions go, “property policies that contain business interruption coverages are going to be key for internet outages," Elkins says. “Cybercrime policies or commercial crime policies could cover intentional outside acts by a hacker. You may also be able to find coverage for negligence by an internal employee that creates a problem."

With business interruption, Elkins points out that “you also want to make sure they have contingent business interruption insurance, which often applies to a third-party—that would come in handy if a client gets their internet from someone else who experiences an outage that impacts them."

Elkins also warns that a key component to look out for is “coverage that does not exclude intentional or preventative acts." She points to lawsuits against the Electric Reliability Council of Texas (ERCOT), which regulates 90% of the state's power grid, in the wake of Winter Storm Uri in February.

“After ERCOT implemented rolling blackouts and shut down electricity for a long period of time, they made a claim under their commercial general liability policy and were sued in a declaratory judgment action by their insurance company," she explains. “The carrier said ERCOT shut down the power intentionally—to manage the demands on the power system—and so the occurrence isn't covered under the policy because it wasn't an accident."

“Things like that happen," Elkins continues. “A company may detect signs of a data breach, for instance, and so they shut down a whole system preventatively to protect their customers' information."

In those instances, an insurance policy that does not exclude intentional or preventative measures is important. “That way the policyholder doesn't have to sit back and wait for something horrible to happen to be able to trigger coverage," Elkins says.

The hard market means agents need to get creative with the types of products they offer. However, “a good cyber policy or business interruption policy that relates to an internet outage needs to have a very short—or no—waiting period before the coverage kicks in so the client can realize the benefits of the coverage," Elkins says. “If a policy has a 12- or 24-hour waiting period, even if the company can get back up and running in that time, they may have still suffered substantial losses."

AnneMarie McPherson is IA news editor.

16053
Friday, September 3, 2021
Commercial Lines