Third-party cyber liability

What is third-party cyber liability insurance?

Third-party cyber liability insurance helps protect your business from the financial consequences of cyberattacks and data breaches that impact your clients or other third parties. 

If customers take legal action against you because their data was lost, this insurance helps cover the costs. The insurance can also help with legal defense costs for these types of lawsuits.

Third-party cyber liability vs. first-party cyber liability

Third-party cyber liability is different from first-party cyber insurance, which covers costs your own business incurs after a cyber incident on your own systems. Simply, first-party covers your business while third-party covers your client’s data.

Here are some sectors where third-party coverage is especially important:

• Healthcare: These businesses handle patient data daily. A data breach could break trust and violate laws like the Health Insurance Portability and Accountability Act (HIPAA).
• Financial services: Firms like banks and insurance companies handle lots of sensitive data. They’re often targets for cyberattacks. This insurance helps manage those risks.
• Retail and e-commerce: These businesses store customer data. A security breach could lead to lawsuits and loss of trust. This insurance can help them recover.

While these sectors are at high risk, almost all businesses face some cyber risk today. 

Types of third-party cyber liability coverage

There are different types of third-party cyber liability coverage, each tailored to address specific risks. Understanding these variations is crucial for choosing the right coverage for your business’s unique needs.

• Data breach liability: Covers mistakenly permitted and unauthorized access to third-party personal or confidential information, resulting in a data breach.
• Network security liability: Protects against failings in a company’s network security, such as allowing malware or a cyber assault that impacts third-party systems.
• Privacy violations: Violations of privacy rules or regulations, often tied to third-party personal data.
• Media and content liability: Covers electronic content, such as copyright infringement, libel or slander that occurs via digital communications or on the company’s website.
• Regulatory fines and penalties: Covers fines and penalties connected to regulatory action for failing to comply with data privacy rules (such as General Data Protection Regulation or GDPR); varies according to the policy and jurisdiction.

Common exclusions in cyber liability policies for small businesses are:

• Purposeful acts and criminal activity
• Incidents that occurred before the policy’s inception
• Liabilities under particular contracts
• Bodily injury and property damage
• Internal costs associated with updating cybersecurity
• Acts of war and cyber terrorism

Jurisdictional and legal constraints can also limit the scope of coverage, particularly for firms with worldwide operations or data breaches that span borders.

The benefits of third-party cyber liability insurance

A third-party cyber liability insurance policy can help a small business considerably mitigate a variety of financial risks, including the following:

• Legal costs
• Settlements and damages
• Regulatory fines
• Notification and credit monitoring costs
• Reputation management

This type of coverage is especially crucial for small businesses, as the financial impact of legal disputes can be enormous and potentially disastrous if not insured.

Protecting your business with NEXT Insurance

NEXT makes it simple and fast to get the business insurance coverage you need. Our policies are designed to be affordable, customizable and easy to manage.

You can start a quote, customize your options and access your certificate of insurance online immediately — in about 10 minutes.

Start your instant quote today.

The information provided on this page is meant for informational purposes only, is general in nature, and is not intended to and should not be relied upon or construed as a legal opinion or legal advice regarding any specific issue or factual circumstance.