Data Breaches and Insurance Coverage

Last month's article began discussion of cases that have grappled with the question of whether businesses' insurance policies cover losses brought about by security breaches. Following are more cases that have dealt with the issue.

In Wisconsin, a federal district court considered whether electronic funds in an online bank account were covered “tangible property” under a policy that provided commercial excess liability coverage and “Bis-Pak” coverage. Carlon Co. v. Delaget LLC, 2012 WL 1854146 (W.D. Wis. 2012). The policyholder in that case was a restaurant group, which had hired Delaget, LLC to manage its finances. Carlon's accounts allegedly appeared to have been exposed to a virus on Delaget's computer, leading to the theft of $696,656 from Carlon's account with Morgan Stanley. Id. at *2. The court held that the liability coverage form of the policy at issue did not apply, because there was no required loss of use of tangible property. According to the court, the electronic funds at issue were not tangible “by the ordinary meaning of that word, and no precedent or sufficient justification has been provided for treating them as such.” Id. at **5-6. The court similarly held that the property coverage form of the policy did not apply, because Delaget had not lost the use of its own property. Id. at *6.