With cyber threats on the rise, many supply and demand chain executives are purchasing cyber insurance policies to help mitigate risk. However, as a relatively new field, the cyber insurance market has not settled on standard policy language, and there has been little case law on coverage disputes, creating an air of uncertainty around many facets of cyber policy coverage. Additionally, these disputes often involve complex information systems, which can present highly technical issues of fact.
Because of these challenges, mediating cyber insurance coverage disputes, with the right mediator, is often the best course of action for both the insurer and insured. It is important, however, to know what you are looking for in a mediator. Supply and demand chain executives, and their general counsel, should keep in mind that the key to successfully mediating cyber claims is using a mediator who understands insurance, the law and the underlying systems at play in a given cyber insurance dispute.
This article outlines some of the reasons why mediating—instead of litigating—cyber insurance claims can benefit insurers and insureds, and provides guidance on choosing the right mediator.
Benefits of Mediation
Both parties typically stand to benefit from mediating cyber insurance disputes. Engaging in litigation in such an unsettled area of the law is risky for both sides. There have only been a handful of cyber policy coverage rulings thus far, and for many cyber coverage disputes that are likely to arise, these rulings will not be instructive. Predicting how courts are going to rule on a given dispute will likely be challenging, which will complicate the cost/benefit analysis of deciding to litigate.
Litigation also is expensive, not only in terms of legal and expert consulting fees, but the cost of occupying key technical resources with preparing for the case, rather than securing the business. These costs can be prohibitive for many insureds, especially smaller companies that are increasingly being targeted by cyber criminals. Mediation often is less expensive than litigation for cyber disputes, as a mediator with the right qualifications can remove the need to hire experts and consultants to educate the court and lawyers on the technology involved. Mediation also allows for more procedural flexibility than litigation, which enables companies to more effectively manage their technical resources while engaging in the dispute.
Furthermore, mediation allows the parties to keep the dispute out of the public eye, which can benefit both sides. While insureds who have recently suffered a data breach will obviously want to avoid publicizing it, keeping cyber coverage disputes confidential is often desirable for insurers as well. Litigating a cyber coverage case that receives negative publicity from an insured’s perspective could reflect poorly on the insurer and result in loss of business. As there are many choices in the cyber insurance market, any loss of goodwill could cause insurers to miss out on acquiring key clients in these pivotal early stages where the market is still developing.
Choosing a Mediator
Deciding to mediate, however, is merely the first step towards effectively resolving a cyber coverage dispute. The key is using the right mediator. Often, the lawyers involved in the dispute have little technical experience, and one of the most important parts of the mediator’s job is guiding the parties and lawyers through the technical nuances of the systems at issue. It is important to keep in mind that there are many areas of expertise in the field of technology, and competence in one area does not necessarily imply competence in another. Therefore, it is critical that the mediator is not only technically competent, but also familiar with the specific information systems the insured is using.
Finally, the mediator also needs to know insurance law and, ideally, have familiarity with both the insured’s business and the insurance business generally. Because a mediator is not simply ruling on the law as a judge would, having a more intimate understanding of both sides’ perspectives and business needs is important to a successful mediation. This can enable the mediator to engage in creative solutions, which are often called for in cyber coverage disputes, due to the variety and negotiability of cyber insurance policies.
Long-term Cost Savings
For some, this situation may beg the question: “Won’t it be difficult and expensive to find a mediator who meets all these criteria?” Sure, retaining such a specialist will probably require some effort and not be cheap, but it is likely to save money in the long run.
Cyber disputes often get bogged down when lawyers insist on making legal arguments in situations where focusing on the technical issues would be more productive. This tends to drive up costs, as the proceedings become more time consuming, less efficient, and increasingly dependent on third-party experts and consultants.
The right mediator can cut to the heart of the technical, legal and business issues at play, and remove much of the need for third-party experts and consultants. In this way, making the extra effort up front to find the right mediator can make a big difference in the time, cost and feasibility of reaching a resolution.