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Practically all businesses today depend on computer networks and the Internet to function. As a consequence, they face a growing array of online risks. Yet the vast majority of companies do not have insurance for these risks, creating serious potential financial exposure. ONLINE RISKS Internet risks are many and varied. They include hacker intrusion and disruption, distributed denial of service attacks, viruses and worms, identity theft, privacy violations, unauthorized use, loss and misuse of date, computer crashes, and a variety of computer crimes. And technical sophistication isn’t necessary to wreak online havoc — while professional criminals or terrorists may be to blame, problems can also be caused by teenagers or company employees. Even though preventative security steps can be taken by companies, there is no silver bullet that can make businesses completely secure. The end result can be shutting down of networks, destruction of data, or the theft of information. Network security risks are far different than traditional risks — such as fire — for which most companies maintain traditional insurance policies that cover damage to tangible physical property. Traditional insurance policies generally do not cover risks relating to intangible electronic data and information. Moreover, many insurers have specifically excluded these risks from standard commercial insurance policies. Nevertheless, a number of insurers have come forward with new types of stand-alone insurance polices to provide coverage for certain types of Internet risks. GOING BARE The Ernst & Young 2003 Global Information Security Survey reports that only 7 percent of 1,400 businesses reviewed actually know that they maintain insurance for network and Internet risks. In addition, almost one-third believe that they possess coverage that they actually lack. Furthermore, 34 percent are aware that they do lack such coverage, while 22 percent could not answer whether or not they have this insurance. Plainly, as characterized by Ernst & Young, the number of companies that know that they have insurance for network and Internet risk is “astonishingly low.” INSURANCE FOR CYBERRISKS Insurers over the past several years have developed new insurance policies to provide coverage for online risks. These policies do differ one from the other, with some being first-party, and others being third-party. These policies must be examined closely to determine whether they meet the specific needs of a given company. Often, the insurer arranges for a technology risk assessment for a particular company prior to issuing an insurance policy. Specific risks that can be covered include breach of privacy due to theft of data, business interruption based on network attacks, loss or corruption data, transmission of computer viruses, failure of network security, cyberextortion, Internet terrorism, online identity theft, Internet professional services, online third-party liability, Internet copyright or trademark infringement/defamation/libel/slander. Premiums for these policies can range from the hundreds of dollars for smaller businesses with limited exposure to hundreds of thousands of dollars for very large companies seeking comprehensive coverage for significant exposure. While thousands of cyberinsurance policies have been issued over the past few years, the companies that don’t have them should get off the dime soon, before they lose all of their pennies. Such companies may want to consult with expert counsel in this area as part of this effort. Eric Sinrod is a partner in the San Francisco office of Duane Morris ( www.duanemorris.com), where he focuses on litigation matters of various types, including information technology disputes. Mr. Sinrod’s Web site is www.sinrodlaw.com, and he can be reached at [email protected] . To receive a weekly e-mail link to Mr. Sinrod’s columns, please type Subscribe in the subject line of an e-mail to be sent to [email protected] .

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