3 Times Businesses Were Denied a Cyber Insurance Payout

Cyber insurance protects businesses from financial losses that can result from a cyberattack. While it’s an essential tool for businesses of all sizes, there are some facts you should be aware of before purchasing a policy and guidance to ensure if you have a claim you receive your cyber insurance payout.

Just because you have cyber insurance, it doesn’t mean you are guaranteed a payout in the event of an incident. This is because you may not have the correct coverage for certain types of cyberattacks or you might have fallen out of compliance with your policy’s security requirements. As a result, it is critical to carefully review your policy and ensure that your business is adequately protected and compliant with your policy to drastically increase your chances of a cyber insurance payout.

Learn From The Past

Here are three real-life examples of denied cyber insurance claims:

1. Cottage Health vs. Columbia Casualty

The issue stemmed from a data breach at Cottage Health System. They notified their cyber insurer, Columbia Casualty Company, and filed a claim for coverage.

However, Columbia Casualty sought a declaratory judgment against Cottage Health, claiming that they were not obligated to defend or compensate Cottage Health because the insured didn’t comply with the terms of their policy. According to Columbia Casualty, Cottage Health agreed to maintain specific minimum risk controls as a condition of their coverage, which they then failed to do.

This case reminds organizations of the importance of reading their cyber policy, understanding what it contains and adhering to its terms.

2. BitPay vs. Massachusetts Bay Insurance Company

BitPay, a leading global cryptocurrency payment service provider, filed a $1.8 million insurance claim, but Massachusetts Bay Insurance Company denied it. The loss was caused by a phishing scam in which a hacker broke into the network of BitPay’s business partner, stole the credentials of the CFO of BitPay, pretended to be the CFO of BitPay and requested the transfer of more than 5,000 bitcoins to a fake account.

Massachusetts Bay Insurance stated in its denial that BitPay’s loss was not direct and thus was not covered by the policy. Massachusetts Bay Insurance asserted that having a business partner phished does not count as per the policy.

Although BitPay is appealing the denial, this case emphasizes the importance of carefully reviewing insurance policies to ensure you understand what scenarios are covered. This incident also highlights the importance of employee security awareness training and the need to reach out to an IT service provider if you don’t have a regular training policy.

3. International Control Services vs. Travelers Property Casualty Company

Travelers Property Casualty Company requested a district court to reject International Control Services’ ransomware attack claim. The company argues that International Control Services failed to properly use multifactor authentication (MFA), which was required to obtain cyber insurance. MFA is a type of authentication that uses multiple factors to confirm a user’s identity.

Travelers Property Casualty Company claims that International Control Services falsely stated on its policy application materials that MFA is required for employees and third parties to access email, log into the network remotely and access endpoints, servers, etc. They stated that International Control Services was only using the MFA protocol on its firewall and that access to its other systems, including its servers, which were the target of the ransomware attack in question, were not protected by MFA.

This case serves as a reminder that when it comes to underwriting policies, insurers are increasingly scrutinizing companies’ cybersecurity practices and that companies must be honest about their cybersecurity posture.

Travelers Property Casualty Company said it wants the court to declare the insurance contract null and void, annul the policy and declare it has no duty to reimburse or defend International Control Services for any claim.

Cyber Insurance Is Only Effective When You’re Prepared

Cyber insurance can play an important role in helping businesses recover from a security incident, but coverage should never be viewed as a substitute for strong cybersecurity practices. Many denied claims stem from preventable issues such as inaccurate application information, missing security controls, policy exclusions, or a failure to meet insurer requirements.

Organizations that take a proactive approach to cybersecurity are often in a stronger position to secure coverage, satisfy underwriting requirements, and avoid surprises during the claims process. Strong authentication, documented security procedures, employee awareness training, backup strategies, and ongoing risk management all contribute to a more insurable and resilient business.

The goal is not simply to purchase cyber insurance. It is to ensure your organization has the controls, documentation, and processes needed to support both risk reduction and policy compliance.

The best time to identify potential gaps is before an incident occurs, not after a claim has been denied.

Would Your Cyber Insurance Policy Respond When You Need It?

Many businesses assume they are adequately covered until a claim review reveals security gaps, policy exclusions, or unmet requirements. If you’re unsure whether your current cybersecurity controls align with your cyber insurance obligations, schedule a free consultation with ITNS Consulting. We’ll help you identify potential risks, evaluate your security posture, and improve your readiness for both underwriting reviews and future claims.

Are You Ready for Your Next Cyber Insurance Review?

Cyber insurers increasingly require businesses to demonstrate strong security controls, risk management practices, and documented procedures before issuing or renewing coverage.

Download our Cyber Insurance Application Readiness Checklist to evaluate your current cybersecurity posture, identify potential gaps, and better prepare for cyber insurance applications, renewals, and underwriting reviews.