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Lessons from the Colonial Pipeline Ransomware Attack: Check Your Cyber Coverage

*Maddie Sanders is a 2021 Summer Associate at Lathrop GPM who contributed to the writing of this blog post.

On May 7, 2021, a cyber-attack shut down Colonial Pipeline, the largest fuel pipeline network in the United States, for multiple days. The hackers requested nearly $5 million in ransom after the attack. However, according to Reuters, Colonial Pipeline had cyber insurance policies, which may have saved the company from paying the ransom and other expenses associated with the costly cyber-attack.

As cyber-attacks have become increasingly common, many companies have fallen victim. While attackers previously required relatively small amounts of ransom payments, in recent years the ransom prices have escalated to nearly $2 million on average. Due to this increased threat, policyholders should consider obtaining cyber insurance to protect their companies.

Generally, cyber insurance covers ransom costs and other costs associated with ransom or extortion threats, such as the cost to hire a security firm and staff to negotiate with hackers. In addition to ransom costs and expenses, most cyber insurance policies cover more general expenses that occur as a result of the cyber-attack including costs for investigation, costs for legal fees and other professional advice, and costs for overtime salaries for employees. Many cyber insurance policies also cover business interruption losses due to the cyber-attack.

When considering cyber insurance, policyholders should discuss options with trusted coverage counsel in addition to their broker. Cyber insurance is relatively new, and therefore is less standardized than some other forms of insurance. Thus, cyber insurance policies may vary greatly in coverage. Coverage counsel can help policyholders assess their risks and decide which cyber insurance policy is best for them.

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  • Kim  Winter

    An insurance coverage and insolvency attorney with more than 20 years of experience, Kim Winter possesses great insight and perspective into complex coverage disputes. She serves as the leader of the firm's Insurance Recovery & ...

The information contained in this post is provided to alert you to legal developments and should not be considered legal advice. It is not intended to and does not create an attorney-client relationship. Specific questions about how this information affects your particular situation should be addressed to one of the individuals listed. No representations or warranties are made with respect to this information, including, without limitation, as to its completeness, timeliness, or accuracy, and Lathrop GPM shall not be liable for any decision made in connection with the information. The choice of a lawyer is an important decision and should not be based solely on advertisements.

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Lathrop GPM is one of the largest law firms in the United States representing policyholders, providing policyholders with the necessary guidance and legal counsel to handle everything from negotiating coverage and managing risk to litigating insurance disputes and recovery. The Road to Insurance Recovery blog is dedicated to helping readers better understand and manage the complexities of the modern business insurance policy.
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