In an era where so much third party data is entrusted to policyholders (financial information, customer data, personal information and health records), insurance coverage against data theft is vital. But many insurance companies will contest loss claims from policyholders after property in their possession but belonging to another party is stolen. Regardless of whether claims fall under commercial crime insurance, financial institution bonds or fidelity insurance, insurers often argue that these are “third party” or “indirect” losses and refuse to pay.
This leaves the policyholder in a difficult position. In addition to potential liability claims from the actual owners of this information, the theft of this information often causes a loss to the policyholder.
But there is good news. Many authorities have established that crime and fidelity policies do cover such theft and that insurers must live up to their coverage obligations.
This article also appeared in The National Law Review (August 11, 2010).