Court Clarifies Cyber Extortion Coverage in Ransomware Case

A recent decision from a Texas federal court has shed light on the limits of insurance coverage for ransomware attacks. In a key ruling, the court decided that Munich Re’s subsidiary could not enforce a $250,000 cap on cyber extortion claims from CiCi Enterprises, a restaurant chain. This clarification arose from the case of CiCi Enterprises LP versus HSB Specialty Insurance Co.

The court’s decision pointed to unclear language in the insurance policy, which prevented the enforcement of the sublimit. After a malware breach in May 2022, CiCi Enterprises reported losses of over $1.2 million. Hackers had encrypted their systems and demanded a ransom. CiCi filed a claim under their cyber policy with HSB, managed by At-Bay Insurance Services. Though the overall policy limit was $3 million, HSB attempted to restrict ransomware claims to just $250,000.

However, the court found the endorsement didn’t clearly modify the cyber extortion coverage section, leading to ambiguity. The court emphasized that if HSB wanted the cap to apply universally, clarity in the contract’s language was necessary. Due to Texas statutes, ambiguities in insurance policies are interpreted in favor of the policyholders, allowing the lawsuit to continue. HSB declined to comment on the ongoing litigation.

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