Cyber Liability, Third-Party Defense Definition

The "Legal-Ease" Glossary
Cyber Liability, Third-Party Defense

This is a kind of liability insurance for businesses that install or service software or networks for their clients. If the client suffers a data breach, they can sue the IT professional who was responsible for their data's security.

Third-party Cyber Liability Insurance was designed for business owners in the information technology field, such as…

This coverage is often included with a tech professional's Errors & Omissions Insurance. It helps you pay for lawsuits when your business — because of its actions or lack of action — is responsible for a data breach, various types of infringement, or privacy liabilities.

Unlike first-party Cyber Liability Insurance (defined here), third-party defense coverage doesn't address the financial fallout associated with hacks and breaches on your own network. Rather, it shields you when your clients suffer a breach because of an alleged mistake on your part.

For example, say you're an IT consultant, and your client hires you to help them step up their security protocol. You recommend antivirus software that has a few recent well-documented weaknesses. When your client's network is compromised and their customers' sensitive financial information is stolen, they decide to pin the blame (and a lawsuit) on your business.

Good thing your third-party defense policy can help you pay for…

  • Lawyers' fees (a small fortune in their own right).
  • Settlements (if you and the client settle out of court).
  • Judgments (if you're found liable for the breach).
  • Other court costs (e.g., witness fees, docket fees, etc.).

Though you may think your chances of being sued over a data breach are slim, you only need to read the headlines these days. Data breaches are becoming the norm, and because they are so expensive and damage reputations, those that suffer them often look to make up lost ground through lawsuits.