T-Mobile US Inc.’s recent cyber insurance victory in Washington state court helps clear the way for organizations to use third-party data breach settlement payments to satisfy skyrocketing cyber insurance deductibles.
The Nov. 28 Washington appeals court ruling held that the telecom giant satisfied a $10 million deductible under a cyber policy with a Zurich American Insurance unit with funds it received from a vendor involved in a 2015 data breach. The court rejected Zurich’s argument that a policyholder can’t use a third-party payment as a deductible and found that the insurer must cover T-Mobile’s losses stemming from the breach.
The decision will add firepower to companies’ insurance negotiations at a time when most cyber attacks involve third-party vendors and businesses face the prospect of being denied coverage because of high deductibles, insurance brokers and attorneys say. Policyholders are getting more aggressive about seeking recoveries from vendors as more cyber attacks target third-party weakness and deductibles jump, they say.
Companies facing insurance disputes over data breaches haven’t had much guidance from courts. Most cyber coverage rulings so far deal with general liability or property insurance. With so few decisions on standalone cyber insurance policies, the T-Mobile ruling will prove useful for future cyber insurance fights, Daniel Healy, an Anderson Kill partner, said.
“We are seeing more policyholders prepared to pursue their vendors in various loss scenarios, including cyber-attacks,” Healy said. “The T-Mobile ruling enables policyholders to push back an insurer’s argument that if policyholders can get recoveries from third parties, they can’t get full coverage.”
More than 60% of data breaches can be traced directly or indirectly to third parties, according to data from Risk Management Society, a trade group for risk man ..
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