Insurance Might NOT Cover Sony Breach - The UpStream

Insurance Might NOT Cover Sony Breach

posted Saturday Jul 23, 2011 by Scott Ertz

Insurance Might NOT Cover Sony Breach

For PlayStation Network members, the data breach might have seemed to end with the 3 arrests, but for Sony it is only the beginning. As time passes, the prospects of class-action lawsuits seems more and more likely and the legal fees continue to mount. Thank goodness Sony has insurance, right?

Well, it might turn out that insurance will not matter in this case. One of Sony's insurers, Zurich American Insurance Co, has asked a New York state court to rule that it is not responsible for paying for Sony's upcoming legal fees. If this ruling is made, it would be a huge blow to Sony's already disastrous financial outlook. Not only that, but it would also set a possible precedent that could be applied to Sony's other insurers, including AIG and ACE Ltd, who have already asked the courts for clarifications on their possible responsibilities under their currently written terms.

How is this playing out so far? Hit the break to find out.

Richard Bortnick, an attorney and blogger for CyberInquirer, says,

Zurich doesn't think there's coverage, but to the extent there may be a duty to defend it wants to make sure all of the insurers with a potential duty to defend are contributing.

While there may be some truth to this, I think there is more avoidance than there is equal participation. Zurich seems more like they are trying to get out of paying than they are making sure the others are contributing, too. If that were the case, the papers would have asked the court to review all outstanding insurance policies for Sony instead of asking them to rule they didn't have to pay.

The concept of "cyberinsurance" is still a fairly new concept in the legal world. Even companies that currently provide the service, which provides financial protection against the ramifications of cyber attacks, don't quite know what they entail. This one, for instance, could possibly be based around physical damage from cyber attacks. While there is often no physical damage, there is the cost of replacing the PSN, which Sony did do after the breach. That has already been covered under this policy.

It will certainly be interesting to see how this continues to play out in the courts. Luckily, with everything that will be piling on top, the PSN attack will be on our radar for years to come.

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