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Cybersecurity Insurance Coverage: Prudent Risk Management for Companies of All Sizes

By Kelly M. Kirby and Delaney M. Busch
December 31, 2015

The Connecticut Supreme Court recently published the much anticipated decision in Recall Total Info. Mgmt., Inc. v. Fed. Ins. Co. (“Recall III“), 317 Conn. 46 (2015), addressing commercial general liability (“CGL”) coverage for data breach. However, those waiting for expanded guidance from the supreme court with respect to coverage for cyber law and/or cyber exposures were most likely disappointed. The Connecticut Supreme Court fully adopted the appellate court's ground-breaking decision that there is no coverage for a data breach claim involving the theft of tapes containing electronically stored personal information under a CGL policy's “personal injury” coverage provisions because, even though there was evidence the tapes fell into the hands of an unknown third party, there was an absence of evidence that the files were accessed by any third parties.

Background

The facts are relatively straightforward, yet unique when compared with other cases where a data breach occurs as a result of hacking, encryption or pirating. See Recall Total Info. Mgmt., Inc. v. Fed. Ins. Co. (“Recall I“), 2012 Conn. Super. LEXIS 227 (Jan. 17, 2012) (both the Connecticut Appellate and Connecticut Supreme Courts adopted their facts from the Connecticut Superior Court's decision, which are set forth in summary below). In this instance, plaintiff Recall Total (“Recall”) entered into a contract with IBM to transport and store tapes containing electronically stored personal information of 500,000 current and past IBM employees. Recall, in turn, subcontracted with another company, Executive Logistics Services, LLC (“Ex Log”) (and together with Recall, “Plaintiffs”), to provide transportation services for the tapes. These tapes were not encrypted, but “[were] not the type that [could] be read by personal computer.” Recall I, 2012 Conn. Super. LEXIS, at *24. Pursuant to the contract, Ex Log maintained a $2 million CGL policy, a $1 million automobile liability policy, a $2 million fidelity bond/commercial crime policy, a $2 million professional liability policy, and a $5 million umbrella/excess liability policy, all naming Recall as an additional insured. Specifically, Federal Ins. Co. issued the CGL policy and Scottsdale Ins. Co. issued the commercial liability umbrella policy.

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