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S2 | Monday, deceMber 9, 2013 | Litigation
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By Lon A. Berk
And roBert J. Morrow
A
s e-commerce and use of the Internet
for commercial transactions has grown,
so too has the sale of so-called “cyber-
insurance.” This insurance product began to
develop in the 1990s as companies increas- Defining the Scope of
ingly recognized that failure to engage in

commercial Internet transactions put them
at an enormous competitive disadvantage, Cyber-Insurance Protection
both with respect to the ability to service
consumers and clients and in the ability to
collect data regarding consumer interests and
needs. Well-established “hard” companies like
Borders Books and others fatally failed to
keep pace with their competitors’ electronic
presence and transactions. Clearly, there is

now a critical dependence on e-commerce.
Dependence on e-commerce, however,
comes with risks. The Internet was designed—
to the extent it was designed—as a method of
transmitting data across multiple networks.
The use of such a system necessarily requires
that a company grant access to others, over
whom it has no control, to at least some

aspects of the company’s transmitted data.
And participation in the system necessarily
requires that others, over whom one has no
control, for at least a while input data into
at least part of a system upon which one
depends. Using e-commerce therefore sub-
jects a company to the risk that others will
take control over its ability to communicate
and to engage in transactions with its consum-

ers and clients. Hence the need for insurance
designed to address the risk associated with
e-commerce.
Not surprisingly, as more and more com-
panies are subjected to and become aware
of the risk of being a part of interconnected
electronic networks, more and more insurers
are offering to cover that risk in exchange for a
premium. Unfortunately, many of these insur-

ers, whether intentionally or not, appear to be
structuring their products in a manner that
does not reflect the nature of e-commerce and
its risks. If cyber-insurance is to play a role
in protecting companies against » Page S10
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Lon A. Berk and roBert J. Morrow are partners sT
at Hunton & Williams in New York, where they are i
members of the insurance counseling and recovery
practice. Mr. Berk also practices in the Virginia office.

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