Towven.com – Global tech outages like the 2024 Cloudflare crash that paralyzed 10% of the internet or the Microsoft Azure outage that disrupted supply chains for 72 hours have exposed a harsh reality, many businesses’ cyber insurance policies do not fully cover losses from third-party tech failures.
As companies scramble to recover revenue, reputation, and operational stability, insurers face mounting disputes over ambiguous policy language, exclusions, and evolving interpretations of “cyber perils.”
The Surge in Tech-Driven Business Interruption Claims
Cyber insurance adoption has skyrocketed, with the market projected to reach $33 billion by 2025 (NAIC).
However, claims denials for tech outage-related losses rose by 40% in 2023, per Fitch Ratings.
The disconnect stems from policies designed for direct cyberattacks (e.g., ransomware) rather than collateral damage from third-party outages. For example:
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A 2023 Akamai CDN failure left e-commerce sites offline for 12 hours, costing retailers $800 million in sales.
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The 2024 CrowdStrike outage grounded airline fleets and hospitals, triggering claims for business interruption (BI), data recovery, and customer refunds.
Yet insurers often deny these claims, arguing outages caused by software bugs or infrastructure failures fall outside “cyber incident” definitions.
Policy Wording Pitfalls
Three key gaps dominate disputes:
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Exclusions for “Non-Malicious” Events: Many policies exclude outages unrelated to hacking or sabotage. After the 2024 Azure outage, insurers denied claims by arguing Microsoft’s server malfunction was a “technical glitch,” not a covered cyber peril.
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Silent Cyber Risks: Older policies lack explicit cyber BI clauses, leading to battles over whether traditional property insurance applies. In TechLogix v. Zurich (2023), a court ruled against coverage for a cloud outage, stating “data loss ≠ physical damage.”
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Third-Party Dependencies: Policies rarely address risks from vendors. A 2024 IBM study found 60% of mid-sized firms lacked coverage for outages caused by SaaS providers.
Legal Battles Redefining Coverage
Courts are increasingly asked to interpret policies never designed for today’s tech ecosystem. Two landmark cases highlight the stakes:
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2023 Cloudflare Crash Litigation: A coalition of fintech firms sued insurers for denying $2.1 billion in BI claims. Insurers argued the outage was excluded as a “failure of infrastructure,” while plaintiffs cited Cloudflare’s status as a “critical service provider” under their policies. The case remains unresolved.
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UK’s 2024 TSB Bank Ruling: A court ordered insurers to cover losses from a third-party payment gateway outage, declaring the event a “system security failure” under cyber policy wording.
These cases underscore the urgent need for policy modernization.
How Insurers Are Adapting
Forward-thinking carriers are addressing gaps with:
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Explicit Tech Outage Clauses: AXA now offers “Third-Party Tech Failure” endorsements, covering outages lasting 6+ hours.
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Parametric Triggers: Chubb’s parametric cyber policies automatically pay claims if outages exceed predefined thresholds (e.g., 99.9% uptime guarantees).
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Public-Private Partnerships: The UK’s Pool Re now covers state-backed cyber risks, including critical infrastructure outages.
However, challenges persist. A 2024 survey by Marsh McLennan found 70% of SMEs cannot afford updated policies, opting for cheaper, inadequate coverage.
Case Study: 2024 Cloudflare Crash Fallout
When Cloudflare’s DNS failure knocked 12 million websites offline, a European logistics firm lost $18 million in canceled orders.
Their insurer denied the claim, citing an exclusion for “non-hostile cyber events.” The firm is now suing, arguing the outage was caused by a failed security patch a “cyber incident” under their policy.
The outcome could redefine coverage standards for tech outages globally.
What Businesses Can Do Now
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Audit policies for exclusions related to third-party outages.
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Negotiate endorsements for “cloud service provider failures.”
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Implement redundancy (e.g., multi-cloud setups) to reduce outage risks.
Conclusion
As global tech dependencies deepen, cyber insurance must evolve from a niche product to a cornerstone of enterprise risk management.
Insurers that clarify policy language, embrace parametric solutions, and collaborate with tech providers will mitigate disputes and remain relevant in a world where a single line of code can trigger a billion-dollar loss.
