For specialist cyber brokers, senior underwriters, and complex claims handlers, the evolution of cyber insurance claims has created a paradox: while outright claim denials remain rare, disputes are increasingly centered on the interpretation of policy language. Historically, insurers focused on fraud or negligence. Today, the most challenging cases arise not from clear misconduct but from ambiguities in policy construction.
Denials are no longer purely the result of late reporting or intentional noncompliance. Instead, technical, wording-based exclusions now account for most friction points. Understanding these exclusions and when they are triggered versus when they are not is critical to protecting insureds and avoiding misaligned coverage expectations.
Let’s examine four exclusions that are increasingly the focus of claim disputes:
- Wrongful Collection Exclusion
- Infrastructure Exclusion (Emerging)
- Blended PI + Cyber Policies
- Social Engineering / Callback Verification
For each, we explore the contractual lines, trigger mechanics, and claims resolution patterns, integrating real-world cyber insurance claims denial case studies.
1. Wrongful Collection Exclusion
Originally introduced in response to cookie-based data collection practices, the Wrongful Collection Exclusion targets claims arising from unauthorized or unlawful data gathering. Insurers historically used it to address:
- Cookies and tracking pixels, such as Meta pixels
- Biometric information collected without legal consent (BIPA)
- Video purchase data shared without consent (VPPA)
The clause is designed to exclude claims based on intentional or unlawful collection, rather than unintentional exposure. In practice, this means it is less a denial mechanism and more a fact-driven evaluation of consent and intent.
Sample Wording:
“This policy excludes coverage for claims arising from the unauthorized or non-compliant gathering of sensitive information, including but not limited to tracking technologies, biometric data collection without consent, or data sharing in violation of applicable law, including BIPA and VPPA.”
When Is Wrongful Collection Exclusion Triggered?
- The insured knowingly collects data without providing notice or obtaining consent.
- The insured fails to comply with statutory notice and consent requirements (e.g., BIPA mandates written consent for biometric collection).
- Third-party claims assert a violation of specific statutes such as VPPA or BIPA.
When Is Wrongful Collection Exclusion Not Triggered?
- Data collection is inadvertent or occurs under a good-faith compliance framework.
- The insured can demonstrate that consent was obtained, and the individual was informed of the purpose, scope, and duration of collection.
- Claims arise from technical errors or misconfigurations rather than deliberate misuse.
Cyber Insurance Claims Denial Case Study
In a recent UK-based SaaS claim, the wrongful collection exclusion was initially flagged because the client’s platform automatically embedded third-party tracking pixels. A detailed review of consent logs and privacy disclosures demonstrated that users had actively opted in, and coverage was ultimately confirmed. This example illustrates that disputes under this exclusion are primarily factual rather than contractual, with resolution hinging on the specifics of intent and compliance.
Wrongful Collection Exclusion Claims Resolution
Friction under the Wrongful Collection Exclusion typically arises not from the policy wording itself, but from clarifying the underlying facts. Claims handlers focus on determining whether the data was knowingly collected, verifying that proper consent mechanisms were in place, and establishing whether statutory thresholds for disclosure and consent were met. In practice, most claims under this exclusion are resolved without denial once the factual matrix is clarified, with documented evidence of intent, disclosure, and consent serving as the decisive factor.
2. Infrastructure Exclusion (Emerging)
The Infrastructure Exclusion is designed to carve out large-scale systemic events that are too widespread to underwrite effectively. These include:
- Catastrophic failures of core internet infrastructure
- Operational technology or network components outside the insured’s control
- Physical or logical backbone failures impacting multiple organizations simultaneously
Unlike traditional exclusions for property damage or bodily injury, this wording is forward-looking, meant to limit accumulation risk and catastrophic exposure rather than deny routine cyber claims.
Sample Wording
“This policy excludes first-party losses arising from failures of backbone component entities, including Internet exchange point providers, DNS service providers, trust service providers, CDNs, and other public electronic communications infrastructure. Losses arising from ISPs or cloud service providers not listed herein are not excluded.”
When Is Infrastructure Exclusion Triggered?
- A cyber event originates at a backbone infrastructure provider and causes first-party losses to the insured.
- The loss arises from systemic failure, affecting multiple entities simultaneously.
- Operational or legacy systems are impacted outside of the insured’s care, custody, or control.
When Is Infrastructure Exclusion Not Triggered?
- The event affects a single cloud or ISP provider not listed as a backbone component.
- Losses arise from internal IT/OT failure under the insured’s direct management.
- Discrete cyber incidents, such as ransomware on a company network, remain fully covered.
Cyber Insurance Claims Denial Case Study
A multinational financial services firm experienced operational disruption due to a partial outage of a Content Delivery Network provider. The insurer initially cited the infrastructure exclusion, raising concerns that the loss might be excluded as a systemic event. However, after detailed network mapping and expert testimony, it was determined that the outage was limited to a regional segment rather than a backbone failure. Coverage was confirmed, demonstrating that the exclusion is often interpretive rather than absolute and hinges on the specifics of the event.
Infrastructure Exclusion Claims Resolution
While denials under the Infrastructure Exclusion remain rare, friction typically arises during policy interpretation at the claims stage. Brokers and underwriters must carefully assess whether a loss is truly systemic, while insureds may attempt to argue that a failure was localized or provider-specific and therefore outside the exclusion. Pre-bind discussions have increasingly included reviews of whether the exclusion can be modified, clarified, or removed for high-value clients with critical hybrid or legacy environments, underscoring the importance of proactive risk management and precise policy wording.
3. Blended PI and Cyber Policies
Blended PI and Cyber policies emerged to address silent cyber risk and coverage gaps. They combine:
- Professional Indemnity (PI): compensatory damages for failure to provide professional services
- Cyber coverage: costs related to data breaches, ransomware payments, or business interruption
The policy is intended to ensure insureds are not left with ambiguous exposure, particularly where a cyber incident triggers both network security and professional service liability.
Sample Wording
“This policy provides combined coverage for professional indemnity and cyber risks. Professional services claims arising from negligence will respond alongside cyber coverage for data breaches, ransomware, or business interruption. For overlapping claims, the cyber component shall respond first.”
When Is Belnded PI and Cyber Policy Triggered?
- A claim simultaneously involves IT service failure and professional advice errors, e.g., a consultancy mishandles client software updates, leading to a breach.
- Overlaps occur between PI and cyber coverage, requiring application of the “cyber first” allocation clause.
- Misalignment arises because definitions of covered acts may differ between PI and cyber components.
When Is Belnded PI and Cyber Policy Not Triggered?
- The claim clearly falls within either pure PI or cyber scope without triggering overlap clauses.
- Contractual definitions are respected, and coverage hierarchy is followed according to the “other insurance” clause.
Cyber Insurance Claims Denial Case Study
A London-based tech consultancy experienced a breach that triggered both a network security failure and alleged advisory errors. Initial discussions raised the possibility of a denial under professional indemnity (PI) ambiguity, given the overlap between PI and cyber coverage. By applying the policy’s allocation clause, the cyber component responded first, covering incident response costs, while PI addressed third-party liability claims. This case demonstrates how blended policies require precise policy fluency to navigate overlaps and ensure coverage is properly allocated.
Belnded PI Claims Resolution
Disputes in these scenarios are typically interpretation-driven rather than denial-driven. Brokers must clarify coverage boundaries before binding the policy, underwriters need to price the risk in light of cumulative exposure, and claims handlers resolve ambiguity by referencing policy definitions, the coverage hierarchy, and contemporaneous communications. Clear documentation and a thorough understanding of the allocation clause are essential to prevent misaligned expectations and coverage disputes.
4. Social Engineering / Callback Verification
Social engineering coverage emerged to address funds transfer fraud. It typically includes:
- Sublimits (well below full policy limits)
- Procedural requirements like callback verification
- Documentation mandates for verification efforts
The intent is to encourage strong internal controls while limiting moral hazard.
Sample Wording
“‘Social Engineering Fraud’ means the intentional misleading of an Employee through a Communication from a person who purports to be a Vendor, Employee, or Owner. Coverage is conditioned upon verification by calling, at a predetermined number, the party purportedly transmitting the instruction, with a contemporaneous written record preserved.”
When Is Callback Verification Triggered?
- The insured completes verification according to policy procedures
- Loss arises directly from deceptive instructions provided to employees
- Written records of verification exist and meet the defined security standards
When Is Callback Verification Not Triggered?
- Verification is incomplete or fails to meet the “secure telephone number” requirement
- Employees attempt alternative verification channels (e.g., email) rather than the prescribed callback
- Procedural documentation is missing or incomplete
Cyber Insurance Claims Denial Case Study
A mid-sized manufacturer processed a fraudulent vendor payment email. Employees attempted a callback as required by the policy, but the vendor could not be reached. Despite this, the insurer ultimately approved the claim because reasonable verification steps had been documented. This example illustrates the market trend toward flexibility in enforcing callback procedures, emphasizing that carriers are increasingly focused on the reasonableness of verification rather than strict, procedural compliance.
Callback Verification Claims Resolution
Rigid callback requirements once drove denials, but today many carriers recognize that strict adherence may be operationally unfeasible. Claims are frequently paid despite imperfect compliance, particularly for smaller losses. Dispute resolution now often centers on whether the insured’s verification efforts were reasonable and consistent with policy intent, rather than an absolute procedural failure, underscoring the evolving approach to social engineering exposures in cyber insurance.
Master Clause Fluency with CCIS
These exclusions highlight a critical reality: claim denials are rarely about misconduct and almost always about contractual nuance. For underwriters, pricing must reflect emerging risks and blended coverage intricacies. For claims handlers, dispute resolution hinges on policy literacy, fact assessment, and procedural compliance.
The only defense against unexpected claim friction is clause fluency. The Certified Cyber Insurance Specialist (CCIS) Designation equips brokers, underwriters, and claims professionals with the tools to:
- Interpret ambiguous clauses with confidence
- Navigate blended PI + cyber products without mispricing or misallocation
- Assess triggers for social engineering and wrongful collection exposures
- Understand emerging infrastructure exclusions in hybrid IT/OT environments
If your role requires navigating these nuanced exclusions, the CCIS provides essential contractual and technical training. Enroll today to master claims handling, policy underwriting, and the avoidance of high-stakes disputes.
