3 Real-Life Cases Where Businesses Were Denied Cyber Insurance Payouts
Cyber insurance is an essential safety net for businesses, offering financial protection against losses caused by cyberattacks. However, having a policy in place does not guarantee that your claim will be approved. Many businesses face denied payouts due to misunderstandings, noncompliance with policy terms, or overlooked fine print.
To help you understand how cyber insurance claims can be denied, we’ve compiled three real-life examples. These cases highlight common pitfalls and the importance of reviewing your coverage and maintaining good cybersecurity practices.
Case #1: Cottage Health vs. Columbia Casualty
The Situation:
Cottage Health System experienced a significant data breach and subsequently filed a claim with their cyber insurer, Columbia Casualty Company. However, Columbia Casualty refused to compensate them, arguing that Cottage Health failed to meet the required risk controls stipulated in their insurance policy.
The Key Issue:
Columbia Casualty claimed that Cottage Health had agreed to maintain specific minimum security measures as part of the coverage terms but did not comply with these requirements. This resulted in Columbia Casualty seeking a declaratory judgment to avoid payment.
The Takeaway:
This case underscores the importance of reading and fully understanding your cyber insurance policy. Even if you have coverage, failing to adhere to its requirements—such as risk management or cybersecurity measures—can jeopardize your claim.
Case #2: BitPay vs. Massachusetts Bay Insurance Company
The Situation:
BitPay, a prominent global cryptocurrency payment provider, filed a claim for $1.8 million after suffering a phishing attack. The hacker exploited BitPay’s business partner, stole the credentials of BitPay’s CFO, and used those credentials to transfer over 5,000 bitcoins to a fraudulent account.
However, Massachusetts Bay Insurance Company denied the claim, asserting that the loss did not directly result from the policyholder’s own actions and thus wasn’t covered under the policy.
The Key Issue:
The insurer argued that since the breach originated via a phishing attack targeting a business partner and not directly BitPay’s own systems, it fell outside the scope of the insurance policy.
The Takeaway:
This case highlights two important points:
- Understand your coverage fully: Insurance policies can be very specific about what events are covered. This incident demonstrates how seemingly related breaches might not fall under certain policies.
- Prioritize employee cybersecurity training: Human error, such as falling victim to phishing attacks, remains one of the most common cybersecurity risks. Proper employee awareness can prevent these costly events.
Case #3: International Control Services vs. Travelers Property Casualty Company
The Situation:
International Control Services filed a claim with Travelers Property Casualty Company following a ransomware attack. However, Travelers refused the claim, arguing that International Control Services failed to comply with their policy’s multifactor authentication (MFA) requirements.
The Key Issue:
Travelers alleged that International Control Services misrepresented their use of MFA in their insurance application. While the company claimed they utilized MFA to control email and network access, they only applied MFA to their firewall—not their servers or other vulnerable endpoints targeted by the ransomware.
As a result, Travelers sought to have the court declare the insurance contract null and void, claiming International Control Services failed to maintain the agreed-upon cybersecurity measures.
The Takeaway:
This case demonstrates how insurers are increasingly focusing on a company’s cybersecurity hygiene and honesty during the underwriting process. Cybersecurity practices, such as implementing MFA consistently, can significantly impact your ability to secure cyber insurance and maintain coverage.
Avoid the Same Pitfalls—Act Before You Need Your Insurance
These real-life cases show that denied cyber insurance payouts can stem from a variety of reasons:
- Misunderstanding your policy terms.
- Failing to adhere to your insurer’s security requirements.
- Not maintaining adequate cybersecurity hygiene.
While insurance provides financial relief, proactive risk management and strong cybersecurity practices are essential. An IT service provider can help identify vulnerabilities, ensure compliance with your insurance policy, and strengthen your overall security posture.
If you’re unsure whether your business has the right coverage, is maintaining compliance, or has gaps in your cybersecurity, reach out for a no-obligation consultation. Avoid falling into common pitfalls by staying informed and prepared—before you file your next claim.