Third-Party Cyber Liability

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What is third-party cyber liability insurance?

Third-party cyber liability insurance provides liability protection for any business whose action (or failure to act) may cause a client data breach or cyberattack. If the client has a cybersecurity breach and sues, third-party cyber liability insurance can pay for the insured business’s legal expenses.


What is third-party cyber liability insurance?

Any company that works with or stores a client’s proprietary information or customer data can be at risk of causing a data breach that could potentially be covered with third-party cyber liability insurance.

Many information technology (IT) businesses benefit from cyber liability insurance, including:

Third-party cyber insurance is typically included in a tech professional's errors and omissions insurance policy. It helps pay for lawsuits when a business is sued over a data breach, various types of infringement, or privacy liabilities.

Numerous other high-risk businesses often purchase this policy, including:

Whether your small business works in the IT field or some other industry, your risk of experiencing a ransomware, phishing attack, or data breach is mounting each year.

If one of your clients is hacked and blames you for it, your resulting legal bills could be devastating. Third-party cyber liability insurance helps ensure that your business can survive the financial aftermath of cybercrime. This makes it an essential small business insurance policy for any company that relies on the internet for business.

How does third-party cyber liability insurance protect my business?

Third-party cyber liability insurance helps you manage the financial impact of a customer data breach. Common costs include:

  • Fees for hiring an attorney to defend against lawsuits
  • Legal settlements or judgments resulting from the breach
  • Costs for reissuing credit cards (for banks)
  • Costs of responding to regulatory inquiries
  • Government fines and penalties

Since the cyber liability insurance market is still evolving, there is no standard package of third-party coverages. Be sure to ask your insurance agent what your cyber liability policy specifically covers for third-party expenses.


First-party vs. third-party cyber liability insurance

Most companies that handle sensitive customer data will benefit more from third-party coverage since it protects them from client lawsuits. However, businesses that store their own sensitive data may want to consider purchasing first-party coverage.

First-party cyber insurance
First-party cyber liability insurance addresses the financial fallout associated with cybersecurity breaches on a business's own network. For example, if an IT consultant's network is hacked and customer credit card numbers are stolen, first-party cyber coverage can pay for expenses such as:

  • Notifying impacted customers
  • Credit monitoring
  • Public relations campaign for damage control

First-party coverage can also pay expenses associated with cyber extortion. For example, if a ransomware attack is holding a cloud service provider's data hostage, the provider's first-party cyber policy can pay the ransom to (hopefully) get the data restored.

Third-party cyber insurance
Third-party coverage can cover expenses for businesses responsible for clients' online security and data. If an IT company's client experiences a ransomware attack or data breach and sues the IT business, third-party cyber insurance can pay the necessary legal expenses to defend the business in court.


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