CU 04 02–ELECTRONIC DATA LIABILITY ENDORSEMENT

(April 2019)

INTRODUCTION

CU 04 02–Electronic Data Liability Endorsement modifies the liability umbrella coverage form to protect the insured against third party property damage claims that involve electronic data. The endorsement provides coverage by modifying three sections in CU 00 01:

Section I–Coverage A as modified by CU 21 86

Note: CU 21 86–Exclusion – Access or Disclosure of Confidential or Personal Information and Data-Related Liability – With Limited Bodily Injury Exception was introduced as a mandatory endorsement with a 05 14 edition date. Because it is mandatory, we replaced the 04 13 wording with the wording in the CU 21 86 when analyzing the CU 00 01.

Section III–Limits of Insurance
Section V–Definitions

ENDORSEMENT SCHEDULE

This endorsement has spaces to enter the premium and the limit of insurance that applies to only electronic data losses.

REVISED EXCLUSION

The mandatory CU 21 86 Coverage A Exclusion t. Access or Disclosure of Confidential or Personal Information and Data-related Liability (which is part of the CU 00 01 Analysis) is changed by the addition of 10 words. These 10 words add coverage because instead of excluding all electronic data related damage, ONLY damages that are NOT the result of physical injury to tangible property are excluded. Another way to state this is that loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data that is result of physical injury to tangible property IS covered.

Example: If an insured damages a computer and that damages data stored in that computer, this endorsement covers the damage to the data. There is no coverage without this endorsement.

LIMITS OF INSURANCE CHANGE

The limit of insurance on the endorsement schedule is a sub-limit of the Coverage A. occurrence limit of insurance. This means it is not a separate limit of insurance. It is more of a capped limit within the occurrence limit.

Example: Junior’s Janitorial has a liability umbrella coverage form with a $5,000,000 occurrence limit and a $10,000,000 aggregate limit. The electronic data limit is $50,000. One of Junior’s employees inadvertently allows water to overflow in the janitor’s closet above its client’s mainframe, destroying both the mainframe and all data stored in it. The mainframe loss is $2,000,000 and the data loss is $1,000,000. This coverage form pays $1,000,000 (the underlying covers the first $1,000,000) for the mainframe but only $50,000 for the electronic data.

DEFINITIONS CHANGE

This endorsement also replaces the definition of property damage.

Property Damage

This definition of property damage replaces the one in CU 00 01 but only with respect to this coverage.

The first two paragraphs are identical to those in CU 00 01:

Tangible property that is physically injured, including its loss of use. Loss of use occurs at the same time as the physical injury that caused it.
Loss of use of tangible property that is not physically injured. Loss of use occurs at the same time as the physical injury that caused it.

The following paragraph is added:

Physical damage to tangible property that results in loss, loss of use of, damage to, corruption of, or inability to access or properly manipulate electronic data. Loss of electronic data occurs at the same time as the occurrence that caused it.

The property damage definition continues to specifically state that electronic data is NOT tangible property.

All references to auto coverages are eliminated from this definition because this endorsement applies only to CGL type coverages.

Example: DaBomb is a clothing manufacturer. It is insured under a commercial liability umbrella coverage form that includes CU 04 02–Electronic Data Liability Endorsement. DaBomb's owner arranges to distribute its clothing through Elektrik Shoppe, an online catalog service. The Elektrik Shoppe Webmaster receives a link to a download site from DaBomb, downloads the product and other information from its site, and installs a page with a link and ordering information at the Elektrik Shoppe site. The Elektrik Shoppe site immediately experiences problems and is shut down for nearly a week. Investigation reveals that a hacker previously broke into DaBomb's site and hid a virus that was released after Elektrik gained access to it. This loss is not covered because it was due directly to hostile coding and was not a loss to tangible property.

Example: Longhaul Luggers is a trucker that serves DaBomb. It now has its own computerized distribution center. Longhaul is insured under a commercial liability umbrella coverage form that includes CU 04 02–Electronic Data Liability Endorsement. A Longhaul tractor-trailer skids on ice on a winter day while making a delivery to DaBomb and smashes through the distribution center's wall. DaBomb's employees evacuate that section of the building and it takes three hours to repair the hole in the wall. During this time, the distribution center's computer equipment is exposed to the weather. The servers and peripherals are not damaged, but the cold destroys the electronic shipment and inventory records. This loss is covered because it arose from damage to physical property, the distribution center’s exterior wall.

CU 04 02–Electronic Data Liability Endorsement is an important first step to cover certain property that is becoming increasingly important. However, it still does not address purely intangible losses.