There is no judicial precedent regarding "hostile/warlike" exclusions, but the New Jersey Supreme Court has consistently required insurers to speak in plain language before enforcing an exclusion. The court found that in Merck's case, coverage would only be excluded if "we stretched the meaning of 'hostile' to its outer limit in a cyberattack when the culprit was a non-combatant firm fully outside the context of any armed conflict or military object." Credit: Den Rise/Shutterstock.com
The demand and growth of cyber insurance reflects the havoc wreaked by hacks, data breaches and phishing attempts, which have become bolder because cybersecurity extorting businesses has proved lucrative. The first reported appellate decision was recently approved for publication.
In Merck v. Ace American Insurance Co., N.J. Super. (App. Div. 2023), the court was confronted with an issue under an "all risks" policy on which Merck made a claim after a cyberattack infected and damaged thousands of computers in its global network. The carriers denied coverage under a "hostile/warlike action" exclusion. Summary judgment was granted to plaintiffs, the trial court finding that the exclusion did not apply. The Appellate Division concluded the insurance carriers did not demonstrate that the cyberattack was a "hostile" or "warlike" action as contemplated by the exclusion, and, therefore affirmed the trial court summary judgment order.
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