Law Firms Feel the Data Breach Heat and Start Buying Insurance

Here are just a few of the many network security and privacy (NSAP) headline incidents that have hit law firms over the years:

  • “Employee at a Palo Alto law firm steals 90 laptops and 120 desktop computers and sells them”
  • “Eighteen laptops stolen from the Orlando office of a major law firm”
  • “Paralegal at a New York law firm downloads a 400 page trial plan in a major case and offers to sell it to the adverse party.”
  • “Employee of a vendor at the Los Angeles office of a major law firm steals a client’s highly confidential encryption data and posts it on hacker websites.”
  • “Thief remains in the offices of a Phoenix law firm after it closes and steals 3 laptops.”
  • “Laptop is stolen from a Cincinnati law firm and is found on eBay.”

Although some insurers are now offering network security and privacy coverage endorsements on their Lawyers Professional Liability (LPL) policies, the vast majority of law firms are generally without any coverage for data loss or theft.   For many years, the old guard broker heaviest in LPL told its clients that coverage for data breach events would be covered under the traditional LPL coverage grant given any breach of confidentiality – including one involving a data breach – would trigger coverage as the provision of legal services.   Fast forward to today and the tune has changed.  It is pretty much standard now for law firms to at least evaluate NSAP options.   Here are just a few of the reasons why NSAP options make sense for law firms: 

  • There is no other available coverage for post-breach expenses such as forensics.
  • Coverage for data and other non-physical perils is routinely excluded under Property policies.
  • The “intentional acts” exclusion found in the standard LPL policy might eliminate coverage if the breach was caused by an insider.
  • Coverage may be unavailable for acts that are outside the provision of professional services.
  • Liability arising out of the destruction of electronic data is not typically covered under the standard General Liability or Property policies.
  • Direct losses caused by vendors may not be covered under crime policies.
  • Crime policies generally only cover theft of money, securities or other tangible property – not information theft or the destruction of electronic data.

For a more “in depth” look at the relevant digital coverage gaps for law firms, read this now timely article written over six years ago.