The Hidden Ways Cyber Insurers Deny Claims, Even After a Real Breach

Cyber Insurance Feels Protective - Until You File a Claim

Many software or SaaS vendors think they're protected once they pay their hefty cyber insurance premiums. But the reality is that insurers spend more time engineering ways to deny claims than they do streamlining coverage.

How Insurers Recharacterize Incidents to Avoid Coverage

What I see repeatedly is not insurers denying “breaches,” but insurers re-characterizing the facts to fall outside of definitions and/or fit exclusions.

Take a common API incident. A company discovers unauthorized access to customer data through an exposed or improperly authenticated API endpoint. They submit a $1M claim for incident response, forensics & notification costs.

The insurer doesn’t dispute that data left the system. Instead, it reframes the loss as arising from a failure to maintain minimum security standards or failure to follow stated security controls, pointing to the fact that the authentication weakness pre-dated the incident and existed for months.

Then there’s the prior knowledge exclusion, which is increasingly weaponized. Internal security assessments or risk reports can be cited as evidence that the insured had knowledge of circumstances that could reasonably give rise to a claim.

Coverage disputes turn on how narrowly the policy defines a covered event, how broadly exclusions are drafted, and how ordinary security conditions are later characterized as grounds to deny coverage.

Sublimits are another quiet trap. The policy headline says $3M, but many of the losses most likely to arise in a real incident are carved into smaller buckets with their own caps. While on paper the limit looks generous, it is quite fragmented in practice.

Insurers craft marketing documents & limit schedules with language and numbers that seem protective. But they know most companies won’t examine the fine print until an incident is already underway and real costs are accruing.

Most companies only discover these landmines after filing a claim. By then, you can't fix the coverage gaps or recreate the documentation that would have supported your case.

What can you do right now?

Identify where your company’s fact or internal security terminology differs from the policy’s framework for covered events and exclusions.

If those answers are unclear (or depend on how generously the insurer reads its own language), you’re relying less on coverage than you think.

The information provided is for educational purposes only and does not constitute legal advice. Reading this article does not establish an attorney-client relationship.

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