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Cyber-Attacks Require Increased Corporate Diligence

Cyber-Attacks Require Increased Corporate Diligence

We hear about new cyber-crime incidents on a daily basis. Thrill-seekers and professional criminals lay digital siege to companies of all sizes, and they target corporate networks especially. These networks regularly endure incursions that target sensitive documents and intellectual property; still, directors and officers often fail to treat cyber security with the same gravitas as other corporate risks.

If personnel fail to recognize the potential impact of a cyber-attack and plan appropriately, this oversight not only exposes the company to financial losses resulting from the incident itself, but can also expose the company, individual directors, and officers to management liability claims not covered under standard cyber-insurance policies.

Directors and officers have oversight responsibility to an organization. When a major failure of corporate responsibility occurs in the form of a significant loss that could have been mitigated or transferred by insurance contract, shareholders, state and federal authorities, and the public at large may take aim at management.

As companies increasingly rely on networks, the Internet, and telecommunications to run their enterprises, they must beef up their defenses against digital incursions. Along with loss of proprietary data, firms can also suffer from business interruption (supply chain, daily transactions, lack of communications during critical junctures) as well as reputational risk. After a major hacking event, shareholders and other outsiders will look at the “duty of loyalty” and good-faith exercise of diligence that was done on behalf of the corporation.

Corporate managers and the directors who are responsible for oversight need to codify in their organizations loss control matters that directly relate to cyber risk. They must also understand that failure to adequately exercise their fiduciary duties to the corporation could result in personal legal action against directors and officers.

Certain strategies can help leaders protect both themselves and their company from losses due to cyber-attacks. First, appropriate policies and procedures should be adopted by management and approved by the board to minimize the likelihood or potential impact of a cyber incident. The policies should encompass all the known aspects of the current risks and preventive actions, as well as state and federal guidelines and statutes. Second, have a strong cyber insurance program in place. Last, a management liability policy—also known as directors’ and officers’ coverage—could be vital in the event that litigation calling management’s judgment into question occurs after a cyber-attack.

We’re all aware of hacking. It’s in everyone’s best interest to stop it before it occurs. But if all else fails, a great insurance program that also incorporates protection of the management team would be invaluable. 

Last modified on Tuesday, 22 April 2014 04:32

Scott West

CEO, Pathfinder LLD Insurance Group


Scott serves as the face and guiding force of Pathfinder/LL&D Insurance Group. He heads up the firm’s strategic planning committee, is the liaison with our major insurance partners, and leads the sales team. He specializes in complex business risks, foreign exposures, professional liability, and executive insurance coverage.

After graduating from Trinity University in 1978, Scott began his career in sales at Pathfinder. He received a Commercial Insurance Counselor designation in 1987. He served as President of the Independent Insurance Agents of Houston from 2006-2007, and currently represents the Independent Insurance Agents of Texas as an advocate for responsible insurance legislation in Washington D.C. He has been a shareholder and director of a Houston community bank since 1992.

Scott is very active in the insurance industry. He has served on numerous advisory committees, including board positions, for both regional and national insurance companies. He regularly meets with television and radio media to give an expert opinion on developments in the industry, especially those that affect people who live and work in Texas. He has authored several pieces published in national trade journals that are specific to the southeast Texas insurance market.

Despite his dedication to Pathfinder, Scott’s primary goal in life is to spend time with his family and be at his ranch (usually the two coincide) in Fayetteville, Texas.


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