Cyber Insurance: A Strategic Priority for Digital Risk Management

Cyber threats are now part of the daily reality of organizations, regardless of their size or industry. Ransomware attacks, data breaches, service interruptions: digital risks are multiplying and can have major financial, legal and reputational impacts. In the face of these threats, cyber insurance is becoming an essential risk management tool.

Cyber insurance aims to cover the financial impacts of a cybersecurity incident. It can include:

• incident response costs (cybersecurity experts, lawyers, public relations);
• business interruption losses;
• legal fees and regulatory fines (within certain limits);
• civil liability in the event of a privacy breach or damage caused to third parties;
• reputation management and post-incident communication campaigns.

Organizations turn to this type of insurance not only to limit financial consequences, but also to strengthen their compliance (particularly with regard to privacy) and reassure their business partners.

Choosing the Right Coverage

The cyber insurance underwriting process starts with a thorough assessment of your organization’s unique requirements. There is no universal policy: coverage, exclusions and limits vary considerably from one policy to another.

Key considerations include:

• the type of coverage: first party (direct damages) vs. third party (third-party liability);
• indemnity caps and deductibles;
• exclusions (e.g., natural disasters, gross negligence, failure to update systems);
• included services: incident assistance, cybersecurity audits, training.

This assessment ensures that the insurance policy is tailored to your organization’s specific risks, rather than relying on a one-size-fits-all solution.

The decision Future Electronics Inc. (Distribution) c. Chubb Insurance Company of Canada illustrates the importance of carefully choosing the coverage required by the organization.[1] In this case, Future Electronics believed they were receiving emails from their supplier’s CFO, indicating new banking information for their payments, when in fact they were dealing with fraudsters. Future Electronics transferred approximately US$2.7 million to fraudulent bank accounts before realizing that their supplier’s CFO never contacted them. Future Electronics made a claim under the computer fraud or wire transfer fraud clauses, which provided for a limit of US$25 million. The insurance company denied the claim and instead offered coverage of US$50,000 under the social engineering clause. The two parties, unable to agree on the interpretation of various contractual clauses, submitted the matter to the Court for resolution. The Court ruled in favour of the insurance company, as the fraud experienced by Future Electronics clearly and exclusively fell under the application of the social engineering clause.

The decision confirms that the coverage offered for this type of risk is limited by specific clauses, which restrict protection to certain fraud scenarios. A comprehensive understanding of your cyber insurance policy’s provisions and limits is crucial to avoid unpleasant surprises.

Risk Declaration and Its Implications

The cyber insurance underwriting process involves a detailed and often complex risk declaration form. The insurer assesses your organization’s cybersecurity maturity by reviewing your internal policies, technical measures, incident history and regulatory compliance.

Any inaccurate, incomplete or misleading statement may render the contract null and void or lead to a denial of indemnity. Moreover, in Travelers Property Casualty Company of America v. International Control Services (“ICS”)[2], ICS was the victim of a ransomware attack. The organization filed a claim under its cyber insurance with Travelers, which declined to provide indemnification. During its assessment of the claim, Travelers discovered that ICS had provided inaccurate information in the declaration form at the time of underwriting. ICS had stated that multi-factor authentication had been put in place. However, Travelers’s investigation revealed that multi-factor authentication was not being used to protect the server and other digital assets. As a result, ICS was not indemnified, and Travelers terminated the insurance policy.

When completing the form, it is therefore important to:

• provide accurate and up-to-date information;
• involve the IT and legal teams;
• document existing security measures.

This process also gives your organization the opportunity to review its practices, identify vulnerabilities and adjust existing measures accordingly.

Conclusion

Cyber insurance is more than just a policy—it is part of a broader digital risk management strategy. To fully benefit from it, your organization must not only understand the coverage provided but also be able to demonstrate the strength of its cybersecurity practices.

As legal professionals specializing in technology, privacy and cybersecurity, we can assist you at every step: from evaluating your internal practices to selecting suitable coverage, including the rigorous preparation of the subscription form. This support helps reduce the risk of disputes with the insurer while strengthening your organizational resilience.