The DPIPA (6 Del. C. § 1201 et seq.) mandates that businesses implement and maintain reasonable security measures to protect personal information. This directly impacts cyber insurance underwriting, as insurers must evaluate the insured’s existing security posture to assess risk. Insurers will scrutinize policies and procedures related to data encryption (both in transit and at rest), access controls, vulnerability management, incident response planning, and employee training. Documentation requested might include: a detailed information security policy, penetration test results, vulnerability scan reports, incident response plan documentation, evidence of employee cybersecurity training programs, and third-party vendor risk management assessments. The level of detail required will depend on the size and complexity of the organization, as well as the sensitivity of the data it handles. Failure to demonstrate reasonable security measures can lead to higher premiums, coverage limitations, or even policy declination.

The Delaware Uniform Trade Secrets Act (6 Del. C. § 2001 et seq.) protects confidential business information. A data breach leading to trade secret theft can trigger claims under a cyber insurance policy. Coverage may extend to legal defense costs, damages awarded to the trade secret owner, and potentially the costs of mitigating the damage caused by the misappropriation. However, exclusions are common. Policies often exclude coverage for trade secret misappropriation by insiders (employees or contractors), or for situations where the insured failed to implement reasonable security measures to protect the trade secrets. Furthermore, proving the actual value of the stolen trade secrets can be complex and may require expert testimony. The policy’s definition of “trade secret” is also critical, as it must align with the DUTSA’s definition for coverage to apply. Insurers will carefully examine the circumstances of the breach and the insured’s security practices to determine coverage.

Delaware’s data breach notification law mandates timely notification to affected individuals and the Delaware Attorney General following a data breach involving personal information. A cyber insurance policy can assist with these requirements by covering the costs of forensic investigation to determine the scope of the breach, legal counsel to advise on notification obligations, notification expenses (e.g., postage, call center services), and credit monitoring services for affected individuals. However, the policy typically will not cover penalties or fines imposed for non-compliance with the notification law. For example, if the notification is unreasonably delayed or fails to meet the statutory requirements, the organization may face regulatory action and fines, which are generally excluded from coverage. Furthermore, reputational damage resulting from a poorly handled breach notification is also unlikely to be covered. Therefore, a robust incident response plan and proactive compliance are crucial.

The Delaware Limited Liability Company Act provides limited liability protection to members and managers of LLCs, shielding them from personal liability for the LLC’s debts and obligations. However, this protection is not absolute. In the context of cyber incidents, members and managers could face personal liability if they actively participated in or directed wrongful conduct that led to the breach, or if they breached their fiduciary duties to the LLC. A cyber insurance policy typically covers the LLC itself, but may not automatically extend to the personal liability of members and managers. The LLC’s operating agreement can significantly impact coverage. If the operating agreement contains indemnification provisions for members and managers, the cyber insurance policy may be required to cover their defense costs and any resulting judgments, subject to policy terms and conditions. Insurers will carefully review the operating agreement to assess the scope of coverage and potential exposures.

Under Delaware law, vicarious liability holds an entity responsible for the actions of another, even if the entity was not directly involved in the wrongdoing. In the cyber context, this means a company could be liable for a data breach or other cyber incident caused by a third-party vendor or independent contractor if the company had a duty to supervise or control their actions. A cyber insurance policy may respond to claims arising from such incidents, but coverage is often subject to specific conditions and exclusions. Insurers will examine the contract between the company and the third party to determine the scope of responsibility and any indemnification clauses. Policies often require the insured to have conducted due diligence on the vendor’s security practices and to have implemented reasonable controls to mitigate the risk of a breach. Failure to do so could result in a denial of coverage. Furthermore, some policies may exclude coverage for incidents caused by vendors located in certain high-risk jurisdictions.

The Delaware Consumer Fraud Act prohibits deceptive or unfair trade practices. A data breach could trigger this Act if a company fails to adequately protect consumer data, misrepresents its security practices, or fails to provide timely and accurate notification of a breach. Consumers could bring claims alleging that the company’s actions caused them financial harm or emotional distress. A cyber insurance policy may cover the costs of defending against such claims, as well as any settlements or judgments. However, coverage is often subject to exclusions. For example, policies typically exclude coverage for punitive damages, which are often awarded in cases of intentional or reckless misconduct. Civil penalties imposed by the Delaware Attorney General for violations of the Consumer Fraud Act are also likely to be excluded. While the policy might cover compensatory damages, such as the cost of credit monitoring or identity theft restoration services, it is unlikely to cover consequential damages, such as lost profits or business interruption losses.

Delaware’s adoption of the NAIC Model Law on Data Security (if enacted) would significantly impact cyber insurance underwriting and claims handling. The Model Law establishes cybersecurity standards for insurers and other licensed entities, requiring them to develop, implement, and maintain a comprehensive written information security program. This would influence underwriting by requiring insurers to assess an applicant’s compliance with these standards as part of the risk evaluation process. Insurers would likely request documentation demonstrating the applicant’s security program, including risk assessments, incident response plans, and employee training programs. Claims handling would also be affected, as insurers would need to investigate whether the insured’s security program met the requirements of the Model Law at the time of the breach. Failure to comply with the Model Law could potentially lead to coverage disputes or even regulatory action against the insurer. Key provisions influencing insurer behavior include the requirements for risk assessment, incident response planning, board oversight, and third-party service provider management.

The principle of “reasonable security” is a cornerstone of data protection laws, including those relevant in Delaware. While Delaware doesn’t have a single, comprehensive data security law like some other states, its laws regarding data breach notification (Delaware Code Title 6, Section 12B-101) and consumer protection (Delaware Deceptive Trade Practices Act) implicitly require organizations to implement reasonable security measures. This principle directly impacts cyber insurance underwriting because insurers need to evaluate the potential insured’s existing security posture to determine the risk of a cyber incident and subsequent claim. Insurers should conduct thorough due diligence, including: reviewing the insured’s written information security program (WISP), assessing their compliance with industry standards like NIST Cybersecurity Framework or ISO 27001, evaluating their vulnerability management and penetration testing practices, examining their incident response plan, and verifying employee cybersecurity training programs. Furthermore, insurers should assess the insured’s third-party risk management practices, as breaches often occur through vendors. The level of due diligence should be commensurate with the size and complexity of the insured’s organization and the sensitivity of the data they handle. A failure to demonstrate reasonable security practices can lead to higher premiums, coverage limitations, or even denial of coverage.

Delaware’s data breach notification law (6 Del. C. § 12B-101) requires businesses to notify affected individuals and the Delaware Attorney General when a security breach occurs involving personal information. Cyber insurance policies often cover various costs associated with complying with this law, including: notification costs (mailing, email, call center), forensic investigation costs to determine the scope and cause of the breach, legal expenses related to compliance and potential litigation, and public relations expenses to manage reputational damage. However, certain exclusions may apply. Policies often exclude coverage for: breaches caused by pre-existing vulnerabilities known to the insured but not remediated, breaches resulting from intentional acts by the insured or their employees, costs associated with improving security systems beyond what is required for notification (e.g., system upgrades), and fines or penalties imposed by regulatory bodies for non-compliance with data protection laws prior to the breach. The specific terms and conditions of the policy dictate the extent of coverage and any applicable exclusions. It is crucial to carefully review the policy language to understand the scope of coverage for breach notification expenses.

The “duty to defend” is a contractual obligation in many insurance policies, including cyber insurance. It requires the insurer to provide legal representation and cover the costs of defending the insured against lawsuits covered by the policy. In Delaware, the duty to defend is determined by comparing the allegations in the complaint against the policy’s coverage provisions. If the complaint alleges facts that, if proven, would fall within the policy’s coverage, the insurer has a duty to defend, even if the allegations are groundless, false, or fraudulent. However, the duty to defend is not unlimited. It is triggered only when the complaint alleges a covered claim. If the complaint alleges facts that clearly fall outside the policy’s coverage, the insurer has no duty to defend. Furthermore, the duty to defend typically ends when the insurer has exhausted the policy limits or has successfully defended the insured against the covered claims. Delaware courts interpret insurance contracts according to their plain and ordinary meaning, giving due consideration to the context in which the language is used. The burden of proving that a claim falls within an exclusion to coverage rests with the insurer.

The “war exclusion” clause is a standard provision in insurance policies that excludes coverage for losses arising from acts of war. In the context of cyber insurance, this clause raises complex questions, particularly concerning state-sponsored cyberattacks. Determining whether a cyberattack qualifies as an act of war is challenging because it often involves attributing the attack to a nation-state and establishing a nexus between the attack and traditional warfare objectives. Insurers typically rely on several factors to assess whether a cyberattack constitutes an act of war, including: attribution (identifying the attacker and their affiliation with a nation-state), intent (determining the attacker’s objective, such as disrupting critical infrastructure or causing physical damage), scale and severity (assessing the magnitude of the attack and its impact on the target), and coordination with traditional military operations. Evidence may include: intelligence reports from government agencies, forensic analysis of the malware and attack techniques, and expert testimony on the geopolitical context of the attack. However, attribution is often difficult and contested, making it challenging to definitively classify a cyberattack as an act of war. The interpretation of the war exclusion clause in cyber insurance policies is an evolving area of law, and courts may consider the specific language of the policy and the circumstances of the attack when determining coverage.

Cyber insurance policies are often written on a “claims-made” basis, meaning that the policy covers claims that are first made against the insured during the policy period, regardless of when the incident giving rise to the claim occurred. This contrasts with “occurrence” policies, which cover incidents that occur during the policy period, regardless of when the claim is made. In a claims-made policy, an incident that occurred before the policy’s inception but is discovered and reported during the policy period may be covered, provided that the policy’s terms and conditions are met. However, many claims-made policies include a “retroactive date,” which limits coverage to incidents that occur on or after that date. If an incident occurred before the retroactive date, it would not be covered, even if the claim is made during the policy period. The retroactive date is a critical factor in determining the scope of coverage under a claims-made policy. Insureds should carefully consider the retroactive date when purchasing cyber insurance to ensure that they have adequate coverage for potential liabilities arising from past incidents. A shorter retroactive date may result in lower premiums but also exposes the insured to greater risk of uncovered claims.

“Betterment” refers to the situation where a covered loss results in the insured receiving a benefit that improves their position beyond simply being restored to their pre-loss condition. In the context of cyber insurance, betterment often arises when a covered loss requires the insured to upgrade their security systems. For example, if a breach exposes a vulnerability in an outdated firewall, the insurer may cover the cost of replacing the firewall with a newer, more secure model. Insurers typically handle betterment in one of several ways. Some policies may exclude coverage for betterment altogether, arguing that the insured should not profit from the loss. Other policies may allow for partial coverage of betterment, covering the cost of restoring the system to its pre-loss functionality but not the incremental cost of the upgrade. Still other policies may cover the full cost of betterment, recognizing that upgrading security systems is often necessary to prevent future incidents and mitigate potential losses. The specific approach to betterment varies depending on the policy language and the circumstances of the claim. Insureds should carefully review their policy to understand how betterment is handled and negotiate for coverage that adequately addresses their needs.

“Affirmative cyber coverage” refers to insurance policies that explicitly cover cyber risks, such as data breaches, network security incidents, and cyber extortion. These policies are specifically designed to address the unique challenges posed by cyber threats. “Silent cyber,” on the other hand, refers to the potential for traditional insurance policies (e.g., property, general liability) to inadvertently cover cyber losses, even though they were not specifically designed to do so. This can create uncertainty for both insurers and insureds, as it may be unclear whether a particular cyber loss is covered under a traditional policy. The Delaware Department of Insurance, like many state regulators, recognizes the risks associated with silent cyber and expects insurers to actively manage these risks. Insurers are typically expected to: assess their existing policies to identify potential sources of silent cyber exposure, clarify policy language to explicitly include or exclude cyber coverage, and develop underwriting guidelines and pricing models that accurately reflect the risks associated with cyber threats. The goal is to ensure that insurers have a clear understanding of their cyber risk exposure and that insureds have appropriate coverage for their cyber-related losses. Failure to address silent cyber risks can lead to unexpected claims, financial instability for insurers, and inadequate coverage for insureds.