|FROM ||Ruben Safir
|SUBJECT ||Subject: [Hangout - NYLXS] healthcare security
|Merck’s Insurers On the Hook in $1.4 Billion NotPetya Attack, Court Says
A court rejected arguments by insurers that they shouldn’t have to cover
Merck’s losses from the Russia-linked attack
May 2, 2023 3:42 pm ET
Insurers for Merck & Co. must help cover losses from a $1.4 billion
cyberattack that the U.S. blamed on Russia, a court said, rejecting the
insurers’ argument that the attack was akin to an act of war normally
excluded from coverage.
The NotPetya cyberattack didn’t involve military action and can’t be
excluded from coverage under a warlike-act exclusion, New Jersey
appellate division judges said in a decision released Monday.
“The exclusion of damages caused by hostile or warlike action by a
government or sovereign power in times of war or peace requires the
involvement of military action,” the judges wrote. “Coverage could only
be excluded here if we stretched the meaning of ‘hostile’ to its outer
Merck is pleased with the decision, a spokesman for the Rahway,
N.J.-based pharmaceutical company said. Lawyers for Merck’s insurers
didn’t respond to a request for comment.
The court’s decision, which upholds a lower court’s ruling, is a blow
for insurers who have in recent years suffered costly losses from a
sharp increase in cyberattacks.
The 2017 NotPetya attack at the center of the court case disrupted
computer systems worldwide. Thousands of Merck computers were damaged
after malware entered the pharmaceutical company’s systems through
accounting software used in the company’s Ukraine operation.
The U.S. and other countries attributed the attack to Russia, and U.S.
federal prosecutors brought related criminal charges, but the U.S. in
its response didn’t liken the attack to armed hostilities. The Russian
government has denied involvement.
“The United States didn’t say ‘NotPetya is an act of war against the
United States and we’re going to launch a military response,’” Mark
Mosier, a lawyer representing Merck, said at oral arguments in February.
Insurers, though, argued that the state-linked action should be
considered a warlike act. Almost all kinds of insurance exclude coverage
for war to try to protect insurers from the runaway losses that can
occur in a conflict between nations.
“It was a virtual cyber nuclear attack,” Philip C. Silverberg, a lawyer
representing several of Merck’s insurers, told judges in February.
Trade groups representing a range of sectors, from manufacturers to
restaurateurs, supported Merck’s position, arguing that categorical
exclusions in insurance policies should be read narrowly.
“The court’s decision was a meaningful affirmation that plain language
and the core, policyholder-friendly tenets of insurance law must
ultimately prevail,” said David Cummings, a lawyer for insurance-related
nonprofit organization United Policyholders.
Write to Richard Vanderford at Richard.Vanderford-at-wsj.com
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