Hunton Andrews Kurth insurance practice head, Walter Andrews, recently commented to the Global Data Review regarding the infirmities underlying an Orlando, Florida federal district court’s ruling that an insurer does not have to defend its insured for damage caused by a third-party data breach.
The decision in St. Paul Fire & Marine Ins. Co. v. Rosen Millennium Inc., which involved a claim for coverage under two general liability insurance policies, turned on whether or not customers’ credit card information obtained from the insured’s payment system had been “made known” and by whom. According to the district court, the insurance policies required that the credit card information be “made known” by the insured, however in this instance, the publication was made by the third-party hackers. As Andrews explained, however, although it was undisputed that Florida law controlled interpretation of Millennium’s policies, the district court based its decision on a prior decision decided under South Carolina law, which differs from Florida law in many fundamental respects. “Florida state law makes it very clear that coverage is meant to be construed in favor of the policyholder where there is ambiguity,” Andrews said. “To me, it’s clear that there were two reasonable interpretations of the insurance policy here.”
Despite the outcome, Andrews noted that there are helpful takeaways from this decision for policyholders and prospective insureds facing potential exposure from cyber events: “Given how strenuously the insurers are fighting to deny coverage for data breach claims, a readable takeaway is that policyholders should consider getting very specific cyber insurance coverage.”