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Third-party cyber insurance

Third-party cyber liability insurance can pay for your business's legal expenses if one of your clients files a lawsuit after experiencing a data breach.

What is third-party cyber liability insurance?

Third-party cyber insurance provides liability coverage for businesses that are responsible for a client's online security. This includes protecting clients from cyberattacks and data breaches. If a client experiences a cybersecurity breach and sues, third-party cyber liability insurance can pay for your business's legal expenses.

What businesses need third-party cyber coverage?

Many businesses in the information technology field can benefit from the protection of third-party cyber coverage, such as businesses that install or service computer networks. Other IT businesses that can benefit from a third-party cyber insurance policy include:

Third-party cyber insurance is often included in a tech professional's errors and omissions insurance policy. This package is called technology errors and omissions insurance, or tech E&O. It helps pay for lawsuits when a business – either because of its actions or lack of action – is sued for causing a data breach or another mistake or oversight.

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First-party vs. third-party cyber insurance

Most IT businesses will benefit more from third-party coverage, since it will protect them from client lawsuits. However, any business that stores sensitive data online should strongly 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 e-commerce business 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 for 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 in order 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.

Third-party cyber liability insurance in action

Let's say you're an IT consultant hired to help your client step up a security protocol. You recommend antivirus software that has a few recent well-documented weaknesses. When your client's network is compromised and customers' sensitive financial information is stolen, the client blames you and files a lawsuit.

At that point, your third-party cyber policy can help pay for:

  • Lawyers' fees
  • Settlements if you and the client settle out of court
  • Judgments if you're found liable for the breach
  • Other court costs such as witness fees, docket fees, etc.

Ransomware, phishing attacks, and data breaches are continuing to rise – impacting more businesses each year. If one of your clients is hacked and sues your business, the resulting legal bills could be devastating. Third-party cyber liability insurance helps ensure that your IT business can survive the financial aftereffects of cybercrime.

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Updated: April 29, 2022
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