The CrowdStrike Global Tech Outage: How Independent Insurance Agents Can Advise Their Clients

The Incident

On Friday, July 19, 2024, a problematic update from the top cybersecurity company, CrowdStrike, triggered a worldwide tech outage. The update led to extensive crashes of Microsoft Windows systems, causing major disruptions across multiple industries. This incident underscored the critical role of insurance for all parties involved in a contract.

Impact on Microsoft and Azure Systems

The problematic update triggered extensive system crashes, causing the infamous "blue screens of death" across numerous Windows devices. This impacted Microsoft's cloud infrastructure, including Azure services, which experienced significant interruptions.

Insurance Implications

This incident caught not only businesses off guard but also some independent insurance agents. Reevaluating client’s needs and reviewing policy limitations and exclusions was a major focus during the days post the outage.

What About Tech E&O Insurance?

Despite CrowdStrike making just one mistake, it impacted over 6,000 businesses and 8.5 million computers across various industries. Their Tech E&O insurance must have adequate limits to cover all resulting claims. It’s likely their insurer will consider this a single incident with “Related Wrongful Acts.” Effective contract management might have limited CrowdStrike’s losses to the fees paid, but even if customers agree to that, the costs can add up quickly. This is why contracts often require high limits for Tech E&O insurance, even for smaller tech companies that might struggle to afford such premiums.

What About Cyber Security Insurance?

CrowdStrike clarified that the issue was an error, not a cyber security breach, shifting the focus to the clients. Clients will find that their property policy for business interruption won’t cover this incident. However, Cyber Insurance might, provided they have the appropriate coverage. Policies with Dependent (or Contingent) Business Interruption that include System Failure as a trigger could potentially respond.

Limitations of Contingent Business Interruption in Cyber Policies

While Dependent BI is becoming a common feature in Cyber Policies, it may have strict definitions on qualifying vendors, lower sublimits than the overall policy, or may exclude System Failure. System Failure coverage addresses business interruptions caused by technical errors rather than cyber security incidents. Cyber endorsements on a General Liability policy are likely to have low liability limits and won’t include these additional insurance agreements.

What Would the Global Tech Outage Cost?

The recent CDK incident, which disrupted auto dealers across the US, is estimated to result in $1 billion in losses, affecting just one industry. The CrowdStrike event is expected to take time to fully assess but is anticipated to lead to unprecedented losses.

Key industries affected include:

Airlines: Over 3,500 flights were canceled globally, with more than 2,200 cancellations in the U.S. alone.

• Financial Institutions: Banks and brokerage firms faced operational disruptions.
• Healthcare: Hospital systems and 911 call centers experienced interruptions.
• Public Services: Departments like the Massachusetts RMV had extended service outages.

What Insurance Should Independent Agents Recommend in Future Situations Like the Global Outage?

In order to protect their clients from future tech outages like the Global Tech Outage of July 19, independent insurance agents should foremost review their clients existing policies and verify if cyber insurance is present. Businesses that do not yet have cyber insurance should consider obtaining quotes now, as these cumulative losses could drive up insurance premiums by the end of 2024.

At Novatae, we specialize in providing comprehensive insurance solutions tailored to the evolving needs of today's businesses. Our expertise in cyber and Tech E&O insurance ensures that your clients are protected against unforeseen tech outages and cyber incidents. Don't wait until premiums rise—schedule a call with Novatae to get the best coverage options for your clients.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.