silent cyber exclusion clause

These events have been classified as a cyber catastrophe, with industry losses now being reported at levels surpassing USD3bn (GBP2.3bn). The use of NMA2914 (issued 25 Jan 2001) increased sharply between 2002 and 2005. . Regulators and global insurers have sought to deal with non-affirmative cyber risks and exposures within property and casualty (P&C) insurance portfolios. How is the use of NMA2914 changing over time? The consultation closes on 25 May 2021 and it is hoped that any changes will be made in time for 1 October 2021. The term 'silent cyber' (or 'non-affirmative cyber') has developed to describe losses that are seemingly remote but can be covered by traditional insurance policies not written with cyber exposures in mind and that as a result do not expressly include or exclude cyber risk. In the following guest post, Umesh Pratapa takes a look at the silent cyber phenomenon. The Silent cyber can arise in a number of ways, for example, if: •Cyber events as triggers for loss are not explicitly included or excluded. Individual insurers are also taking steps to address silent cyber exposures. This is defined within the minimum terms . The questionnaire requested information on both affirmative cyber insurance and cyber exposure on other liability insurance policies where cyber is not explicitly excluded (silent cyber). The Exclusions: LMA5400 and LMA5401. Analysis is required to understand how a specific policy will respond to cyber as a peril. •isk concern over silent cyber exposure moved R . The general observation (and complaint from some brokers) has been that many insurers have elected simply The LMA and IUA have published over 120 model clauses with consistent definitions being used. Op-ed | If hackers cripple your satellite, are you covered ... Cyber risk wording requirement A step towards removing 'silent cyber' cover in marine ... LMA Wordings The Cyber Loss Absolute Exclusion Clause provides re/insurers with an option to exclude any loss . IUA publishes exclusion clauses to . and contracts were previously silent on this risk. The purpose of the clauses in the new model is to clarify cyber coverage for satellite operators and address the issue of "silent" or non-affirmative coverage for cyber-caused risks. Recently issued wordings. In that case, the argument for silent cyber coverage was undermined by a war exclusion clause. 1. 122 Perhaps these insurers never intended to provide any cyber coverage and are now understandably motivated to . LMA5403 - Marine Cyber Endorsement This is the most common 'cyber exclusion clause' that will be used in Hull insurance policies going forward. I don't know of any pure cyber policy that refused to pay out for WannaCry or NotPetya -- so the proof is in the pudding." There is a distinct possibility that the Mondelez/Zurich issue is being used as a test case to provide clarity. 121 Merck's and Mondelez's disputes involve only their all-hazards property and casualty policies, which are allegedly silent about cyber risks. New exclusion clauses have emerged as insurers try to avoid overexposure to cyber risk. endorsements and exclusion clauses. The reason being that the maritime industry is particularly vulnerable to risks presented by 'silent-cyber' and the out-dated, one-size-fits-all cyber clause, The Institute Cyber Attack Exclusion Clause (CL380), was no longer fit for purpose, as discussed in our previous article. This issue of non-affirmative coverage for cyber events is known as silent cyber. • Cover what would be excluded by a cyber exclusion clause on the property policy, for property damage, business interruption, and operator's extra expense • Cyber exclusion must be triggered under the property policy for this to respond - aligns with LMA5400 21 May 2021 Sarah-Jane Owen PII & Regulatory Manager ICAEW Response submitted via e-mail and online portal Dear Sarah-Jane, Changes to ICAEW's Minimum Approved Wording1 We are writing to provide comments on the 12th April 2021 market consultation on amendments to the ICAEW's minimum terms wording to address the increasing focus of regulators on cyber risks • The first type of clause confirms coverage irrespective of whether the claim or loss is related to a cyber event or issue (an "Affirmative Cover Clause") . LMA5553 - Strike, Riot, Civil Commotion and Malicious Acts Exclusion. Cyber and the War Exclusion Robert Muir-Wood May 21, 2019 In 1915, Cuthbert Heath - pioneer of catastrophe insurance at Lloyds of London, decided to offer insurance policies to cover the impacts of war, far from the front line. 4 Courts are not usually swayed by the label, but it does set clear expectations for agents, brokers and insureds. The exclusion is short, has a number of undefined terms and continues to raise debate regarding how it should be interpreted. July 11, 2019. Approaches in cargo markets around the world vary ranging from policies being "silent", containing exclusions, providing affirmative coverage, and offering defined limits. One key to addressing this comprehensively is to use appropriate definitions. Come January 1, 2020, Lloyd's underwriters will be required to clarify whether first-party property damage policies affirm or exclude cyber . Silent Cyber Exclusions. The Many Cyber Exclusions Within D&O Policies. The language used in the exclusion is broad, and the clause is drafted as a paramount clause. Silent cyber risks are defined as cyber risks that arise 'from implicit cyber exposure within 'all risks' and other liability insurance policies that do not explicitly exclude cyber risks' (Bank of England Prudential Regulation Authority (PRA) 2016 ). The resulting impact could result in losses over USD $100 billion ("Shen Attack: Cyber risk in Asia Pacific ports," 2019). Non aviation cyber liability risks "Non Aviation" silent cyber exposure identified through claims AVN 124 Data Event Clause published by AICG - Opposition of the main brokers In pure cyber policies, war is still an exclusion, but cyber terrorism is more likely to be covered. Silent cyber assessment framework - Volume 25 . The introduction of these clauses has been prompted by the PRA's previous consultation on this issue and . Speaker: Celso de Azevedo . Umesh Pratapa. . For policyholders, it can result in uncertainty as to the existence of and extent of their cyber coverage, increasing the risk of. This has parallels to the Silent Cyber issue plaguing the commercial insurance industry. When the NotPetya attack happened in 2017 . silent cyber • It affords affirmative cyber cover subject to conditions and limits • It follows widespread consultation with brokers, underwriters and the authorities • It is not compulsory -individual underwriters may have a greater, or lesser, cyber risk appetite to suit client and internal management needs Don't let the perfect be the Of these losses, 90% were driven by silent cyber impacts. This has exclusion has similarities with the commonly used market cyber exclusion clause CL380 and which many primary war risk underwriters incorporate in their policies. 6 - International Motor Third Party Liability LMA5458 - Cyber Exclusion Clause - (Casualty Treaty) As with all LMA model clauses, these clauses are purely illustrative and are distributed for the guidance of LMA members, who are free to agree to different conditions or amend as they . This inherent feature of cyber risk undoubtedly poses challenges for those seeking to transfer the risk and those prepared to accept it. The biggest cause of concern is whether the clause intends to exclude cyber attacks and accidental cyber events, or solely cyber attacks. Regulators and global insurers have sought to deal with non-affirmative cyber risks and exposures within property and casualty (P&C) insurance portfolios. Insurance buyers must develop more sophisticated and analytical insurance buying strategies to mitigate growing cyber exclusions and coverage restrictions, a leading cyber risk management firm has told Commercial Risk Europe. Why is silent cyber an issue now? Do the LMA5400 series of exclusions eradicate silent cyber? VI Cyber regulation The silent cyber H&M cover under the NMIP is however restricted by the general exclusion of war perils in Clause 2-8 (a), cf. The first new model clause, called "Cyber Loss Absolute Exclusion Clause" (reference: IUA 09-081), provides market participants with an option to exclude in the broadest possible manner any loss. Marine Cargo: Addressing Silent Cyber Risk. This old clause does however address the issue of In addressing 'silent cyber', clarity is essential. Cyber risk wording requirement Institute Cyber Attack Exclusion Clause CL 380, which excludes loss damage liability or expense directly or indirectly caused by or contributed to by or arising from the use or operation, as a means for inflicting harm, of any computer, computer system, computer software programme, malicious code, computer virus or process or any other electronic system. If you wanted to define it, you could say that Silent Cyber broadly refers to any cyber-related loss covered by insurance policy language that is not explicitly specific to cyber. ISO publishes first non-affirmative exclusions relating to data breach (incl. In general, there are three positions an insurer can take in regard to covering a cyber risk: "Other Insurance" Clause may make professional liability policy primary. IUA 09-082 Cyber Loss Limited Exclusion Clause -this clause differs to IUA 09-081 in that Paragraph 2 refers to 'Cyber Loss… directly caused by', rather than 'directly or indirectly caused by', which ties the proximate cause within the wording to a cyber event. Both Lloyd's and the Prudential Regulation Authority have pushed for carriers to be able to assess their silent-cyber exclusions and specifically outline whether coverage is given in non-cyber . 3 October 2019. Exclusion Clause. IUA 09-082, the Cyber Loss Limited Exclusion Clause, is identical to the Absolute Exclusion Clause except that it does not contain the words "and indirectly" in Paragraph 2. Mickaela Fox Partner. In addition, there will be clauses inserted, and some of these clauses may address cyber as a peril to the . The reason being that the maritime industry is particularly vulnerable to risks presented by 'silent-cyber' and the out-dated, one-size-fits-all cyber clause, The Institute Cyber Attack Exclusion Clause (CL380), was no longer fit for purpose, as discussed in our previous article. Exclusion Clause) and broad covers Pressure of regulatory authorities on insurers to identify, quantify and manage their cyber exposure 2. The International Underwriting Association (IUA) has published two new London Market model clauses to help underwriters manage cyber losses and address issues related to non-affirmative cover. Stuart Collins May 24, 2021. Credit: iStock/solarseven. Exclusions • Marine hull, cargo and liability policies commonly use Institute Cyber Attack Exclusion Clause CL380 to exclude cyber incidents. Staff working at Lloyd's managing agents (LMA members) are entitled to access the Repository free of charge. The first two positions leave no doubt in the event of a cyber risk being realized. Cyber risk does not just involve traditional computers but extends to complex network infrastructure. This is because CL380 does not deal with non-malicious cyber issues, which are, in many cases, just as common. Title of the Exclusion - The London Market released IUA 09-081, called the "Cyber Loss Absolute Exclusion Clause" and a few U.S. carriers have also added "absolute" to the heading. The term reflects a concern amongst regulators that insurers may not fully understand the extent of their cyber exposures under different lines of insurance and so may not be pricing policies appropriately to manage risk. The title of this clause is a stylistic proposal to explain what types of loss the clause discusses. The danger posed by silent cyber is an issue this newsletter has called attention to in the past.We highlighted Willis Towers Watson's 2018 Silent Cyber Risk Outlook, which showed that concerns about silent cyber, or non-affirmative cyber risk—"potential cyber-related losses due to silent coverage under insurance policies not specifically designed to cover cyber risk . For further information and advice please contact Mickaela Fox. Silent Cyber in Professional Indemnity Insurance Silent (or non-affirmative) cyber coverage and the systemic risk it poses is a serious concern for the . Cyber loss is excluded, irrespective of whether it is malicious or non-malicious. +44 (0)151 242 7963 Email Mickaela. Case law is sparse, and policy language is slowly beginning to adapt itself to modern risk. The changes the ICAEW have now introduced apply the cyber exclusions within the IUA model clause, but only in relation to "Relevant First Party Loss". The insurance market has seen some large losses in recent years as a result of sophisticated cyber events such as the WannaCry, Petya and NotPetya ransomware attacks in 2017. 17 Institute Cyber Attack Exclusion Clause (CL 380), 10/11/03 17 1. Silent cyber, more appropriately known as non- affirmative coverage, is talk of the town now causing a great deal of concern and justified anxiety amongst insurers, insurance intermediares and insureds. When Traditional Lines Insurers Attach "Silent Cyber" Exclusions 7 NOTE : Noneof these options alleviate the need to purchase a standalone cyber policy for full scope of cyber coverage. It's not covered (exclusions/clauses) There's no clear position (non-affirmative/silence). In response, many insurers have adopted various exclusions, sub-limits and changes to non-cyber insurance policies. In this blog post we expand on the issue of silent cyber we mentioned in our last blog and dive into different examples of insurance exclusions that may be present in your portfolio. It wasn't much of a problem…until it was. As a result, these "silent" policies could read to cover cyber events that were not contemplated at the time the policies were drafted. It is important to educate management on the clause strength interpretation so that they are aware that cyber losses may occur even where exclusions are currently being relied upon. Of the filings submitted, over 85% of the non-affirmative cyber policies do not contain an explicit cyber exclusion clause. Typically, a war exclusion clause stipulates that any damages as a result of "hostile or warlike actions" by a state or its agents will not be covered. The War Exclusion. Traditional property and liability insurance policies were silent on cyber attacks. Subject only to clause 1.2 below, in no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to by or arising from the use or operation, as a means for inflicting harm, of any computer, computer system, computer software programme malicious • 1.1 Subject only to clause 1.2 below, in no case shall this insurance cover loss damage liability or expense directly or indirectly caused by or contributed to by or arising from the use or operation, As many insurance industry observers know, one of the great concerns within the industry now is the possible impact of "silent cyber" - that is, the potential for cybersecurity-related coverage outside of purpose-built cyber insurance policies. Clause 2-9. From 1 January 2021, Lloyd's syndicates are required to clarify their position on 'silent cyber' in Professional Indemnity (PI) and Directors' and Officers' (D&O) policies. This could result in the creation of a pandemic-specific market to absorb those excluded risks. 'Silent cyber' is the term used to describe potential cyber exposures within these traditional property or liability insurance policies, where cyber coverage is neither explicitly excluded nor clearly included. • The second type of clause specifically excludes any claim or loss related to a cyber event or issue even if coverage would otherwise be afforded (a "silent cyber exclusion") . Cyber Exclusion Clause 2017? 2.2 Potential Scale of Silent Cyber Non-affirmative cyber risk is a very real threat, and recent cyber events have highlighted how it has the potential to threaten the ongoing viability of an organisation; 90% of the Petya/NotPetya industry losses were classed non-affirmative losses (Reinsurance News, 2018). Cyber risk wording requirement Not entirely (as will be discussed in greater detail on Day 4), although each of the exclusions does largely fulfil the PRA's primary objective in terms of clarifying the coverage position on malicious and non-malicious cyber. If you require any help or guidance on issues relating to cyber cover in insurance policies, contact our cyber . The exclusions try to sort "malicious" attacks from "non-malicious" events connected to cyber. Cyber Incident Exclusion with Ensuing Cause(s) of Loss Exceptions (CP 10 76 12 20 and BP 15 61 02 21) This endorsement is similar to the Cyber Incident Exclusion except that there is an additional exception for certain Other Causes of Loss resulting from a cyber incident. . Hence they created a specific Cyber exclusion clause. This could potentially result in an owner who suffers a cyber-attack that falls within the scope of terrorism finding themselves effectively without cover for P&I risks. LMA5400 and LMA5402) in respect of Lloyd's Y5258 Similar pandemic exclusion clauses may become the norm in future. War exclusions have yet to be invoked in any standalone cyber insurance policies. The International Underwriting Association (IUA) has drafted a broad clause to address silent cyber risk. In the interim, the c-suite is being confronted with constantly increasing . • A policy may (a) afford silent cyber cover if Cl.380 is not used or (b) afford silent cyber cover for non-malicious cyber even if Cl.380 is used. The clause can be inserted into almost any P&C insurance policy to totally exclude cyber exposures, although it includes a provision that would allow the contractual parties to agree to include cyber-related exposures on a case-by-case basis. and/or. This move was made by the AIMU's Cargo Committee "in response to market changes and at the request of its members" to offer language other than the organization's existing cyber . In these instances, the CL380 exclusion clause would not apply and the insurer may still face liability. LMA5400 and LMA5401 contain four separate exclusions on damage and loss in connection with: any unauthorised, criminal or malicious act involving a Computer System (a 'Cyber Act'), whether the Computer System is the Insured's or a third party's; The risk of "silent cyber" — ambiguity over what is covered or excluded in a policy — remains a persistent problem. Experience from roll-out on previous policy classes indicates there may be limited consistency between insurers, and some overly broad exclusions put forward. Silent cyber is problematic for both policyholders and insurers. What the lawsuits filed by Merck and Mondelez demonstrate is that silent cyber is more a universal issue than simply looking at the language in the insuring clauses or analyzing cyber exclusions. New exclusion clauses are now being introduced, but the CL380 clause can still be found in many policies. Namely, many commercial insurance policies did not include coverage or exclusions for cyber events. One such example is the Institute Cyber Attack Exclusion Clause (cl 380), which states: "in no case shall this insurance cover loss damage liability or expense directly caused by or contributed to by or arising from the use or operation, as a means for inflicting harm, of any computer, computer system, computer software program, malicious . According to one Guy Carpenter report, Silent Cyber is triggered when: Cyber perils are not explicitly included or excluded; CG21 06 05 14) 2014 2019 IUA 09-81 (Cyber Loss Absolute Exclusion) and IUA 09-082 (Cyber Loss Limited Exclusion) published LMA releases Property and Marine Cyber clauses (incl. IUA adds exclusion clauses for silent cyber risks. The International Underwriting Association of London (IUA) has published two draft "Cyber Loss Exclusion Clauses", in order to seek to address the current uncertainty in relation to non-affirmative, or "silent", cyber risk cover. Recently the American Institute of Marine Underwriters (AIMU) approved language for a Cyber "buy-back" clause. Growing use of cyber exclusions bring complexity for buyers. Clause 2-8, does not list cyber as an excluded risk. The reason being that the maritime industry is particularly vulnerable to risks presented by 'silent-cyber' and the out-dated, one-size-fits-all cyber clause, The Institute Cyber Attack Exclusion Clause (CL380), was no longer fit for purpose, as discussed in our previous article. The International Underwriting Association (IUA) has published two new clauses to help the London market manage silent, or non-affirmative, cyber exposure. Understanding your broader insurance portfolio. •Any express cyber coverage is ambiguous or conflicts with other policy wording. The definition of cyber act aligns with the definition in the International Underwriting Association's (IUA) model clause and is considered appropriate for the MTCs. If you are a member and require a login to access this resource, please email chris.kent@verisk.com. Any loss, …directly or indirectly caused by or contributed to or resulting from the cyber incidents …in the following provisions a) to g) are not covered …: a) Damage to or Loss of Data occurring on the Insured's Computer Systems b) Computer Malicious Act on the Insured's Computer Systems, or Silent . LMA5456 - Limited Cyber Exclusion Clause (Casualty Treaty) No. During recent years, so-called "silent cyber" has been an area of increasing focus for both regulators and insurers. Cl.380 : Institute Cyber Attack Exclusion Clause 1.1 Subject only to Clause 1.2 below, in no case shall this insurance cover loss . In that case, the argument for silent cyber coverage was undermined by a war exclusion clause. Despite all of the large scale hacks and cyber related headlines, cyber security litigation itself remains in its infancy. CYBER LOSS ABSOLUTE EXCLUSION CLAUSE - IUA 09-081 . attaching specific limits of cover" PRA SS4/17 - Non-Affirmative Cyber Risk. When it comes to insuring against cyber threats, insurance industry professionals say silence is not golden. IUA 09-082, the Cyber Loss Limited Exclusion Clause, is identical to the Absolute Exclusion Clause except that it does not contain the words "and indirectly" in Paragraph 2. Cyber risks are therefore at the outset covered. 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