Target Data Breach Part 2: The Additional Insured

Erin L. Webb

More information has come to light about the data breach affecting Target, and it highlights the importance of “additional insured” coverage, as well as the need for companies to recognize that sophisticated cyberattacks can affect any company, not just those in the computer or technology industries.  Blogger Brian Krebs reports that the theft of credentials from a heating and cooling (HVAC) company may be linked to the Target breach.

How could it happen?  No details have yet been publicly confirmed, but it is possible that the HVAC company had access to Target’s network so that it could remotely monitor heating and cooling efficiency at multiple Target locations.  If Target’s electronic systems were linked – if one was accessible via another – a path for a hacker from HVAC information to credit card processing may have been possible.

It may come as a surprise that a major cybersecurity breach could be linked to an HVAC company.  What could be more “old economy,” more “brick and mortar,” than heating and air conditioning installation?  Yet, as Google’s $3.2 billion acquisition of “smart thermostat” maker Nest shows, these types of services are becoming more connected than ever before, increasing the amount of risk and liability management necessary for businesses.

Insurance coverage is an important part of this picture.  Often, parties working together on a project require, as part of their contract, that one party will add the other to its insurance policy as an “additional insured,” providing additional coverage for liabilities arising out of the project.  Occasionally, both parties will add one another to their respective policies.  Still other situations involve contractual agreements where one party agrees to indemnify the other.

All of these possibilities can give rise to complicated questions about insurance coverage when liabilities arise.  Which insurer pays first?  Are the policy limits shared, or do the “named insured” and “additional insured” get separate sets of limits?  Does the indemnity agreement take precedence, or does the insurance policy?  These are important considerations that should be carefully analyzed not just when liabilities arise, but also at the time the coverage is placed, as many disputes can be avoided with careful planning and drafting.  Consulting with coverage counsel or experienced insurance brokers can help ensure that companies are getting the protection they intend.

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