Although cyber risks insurance in the London market is fast growing, more clarity is needed as various types of clauses drafted by different insurers are in use creating an enormous degree of confusion for assureds as to the scope of the cover on offer. With the objective of providing added clarity, from 1 January 2020, Lloyd’s underwriters will be required to clarify whether first-party property damage policies affirm or exclude cyber cover.
This is certainly a positive development and with the aim to assisting in this process, the Lloyd’s Market Association (LMA) has recently published a number of new clauses for the property and marine markets that can be used with traditional lines of business, e.g. hull & machinery policies, war risks insurance policies for vessels and other offshore structure. It should be noted that clauses published by LMA are designed to act as “models” and are distributed for the guidance of its members, who are free to agree to different conditions or amend as they see fit.
The new clauses published by the LMA comprise a cyber endorsement (LMA5400) and exclusion clause for Property D&F (LMA5401) and a cyber endorsement (LMA5403) and exclusion clause for Marine (LMA5402). All clauses explicitly supersede or replace conflicting policy wording related to cyber loss and data.
Both the property endorsement and exclusion clauses exclude coverage for any cyber loss, as well as any costs related to the use or replacement of data. The endorsement does, however, affirm coverage for physical loss or damage to property caused by fire or explosion that results directly from a cyber incident, as well as coverage for physical damage related to data processing media owned by a policyholder.
The marine clauses, meanwhile, rule out coverage for any loss or expense related to the “failure, error or malfunction of any computer, computer system, computer software programme, code, or process or any other electronic system.” Similarly, they exclude coverage for “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.” However, marine cyber endorsement clause makes it clear that if the clause is used with policies covering risks of war, civil war, revolution, rebellion, insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power, or terrorism or any person acting from a political motive, the cover will be available for losses arising from the use of any computer, computer system or computer software programme or any other electronic system in the launch and/or guidance system and/or firing mechanism of any weapon or missile.
It should be noted that liability and treaty reinsurance policies will also be required to clarify whether they affirm or exclude cyber cover and these requirements will come into effect in two phases during 2020 and 2021.
