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A shareholder of LabCorp, which operates one of the country’s largest clinical laboratory networks, recently commenced a shareholder derivative lawsuit in Delaware Chancery Court against certain of the company’s directors and officers, following multiple cybersecurity incidents which allegedly affected millions of LabCorp patients.  The lawsuit against LabCorp’s directors and officers is part of a growing trend of claims against directors and officers of companies arising out of data breaches or other cyber-security incidents.

In recent years, more than half a dozen securities and shareholder derivative lawsuits were brought against companies and/or their directors and officers, arising out of an underlying data breach.  As cyber-attacks become more frequent, the number of lawsuits brought by shareholders related to cyber-incidents will likely increase as well. Such lawsuits typically allege that the company’s management failed to implement adequate safeguards against such incidents, failed to adequately disclose the company’s cybersecurity protections and/or the impact of a data breach on the company’s business. While D&O liability insurance generally affords coverage for securities and shareholder derivative lawsuits, certain coverage issues may arise when coverage is sought under a D&O policy for a cyber-based claim.

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