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Legal developments in data, privacy, cybersecurity, and other emerging technology issues

Ohio Supreme Court Weighs In On “Silent Cyber” Fight

The Ohio Supreme Court recently ruled that the “Electronic Equipment” endorsement of a property insurance policy does not provide coverage for a policyholder’s losses following a ransomware attack.  In EMOI Servs., LLC. v. Owners Ins. Co., 2022-Ohio-4649 (Ohio 2022), the Ohio Supreme Court reversed an appellate court’s decision which held, among other things, that there was potential coverage under the “Electronic Equipment” endorsement because damage to software could constitute “direct physical loss of or damage” to covered property.  

Details on the appellate court decision can be found here.

The Ohio Supreme Court disagreed with the appellate court.  In holding that the “Electronic Equipment” endorsement did not provide coverage for the insured’s losses following a ransomware attack, the court focused on the policy’s “direct physical loss or damage” language.  The court concluded that “[s]ince software is an intangible item that cannot experience direct physical loss or direct physical damage, the endorsement does not apply in this case.”  The court further explained that, in its opinion, “computer software cannot experience ‘direct physical loss or physical damage’ because it does not have a physical existence.” 

The holding in EMOI Services parts with decisions from other courts which have held that data and software “can experience ‘direct physical loss or damage.’”  See, e.g., Natl. Ink and Stitch, LLC v. State Auto Property and Cas. Ins. Co., 435 F.Supp.3d 679 (D. Md. 2020) (the “more persuasive cases are those suggesting that loss of use, loss of reliability, or impaired functionality demonstrate the required damage to a computer system, consistent with the ‘physical loss or damage to’ language in the Policy.”).  See also Landmark Am. Ins. Co. v. Gulf Coast Analytical Laboratories, Inc., CIV.A. 10-809, 2012 WL 1094761, at *4 (M.D. La. Mar. 30, 2012) (because electronic data “has physical existence, takes up space on the tape, disc, or hard drive, makes physical things happen, and can be perceived by the senses,” electronic data is susceptible to “’direct, physical loss or damage.’”).

Even after the EMOI Services decision, policyholders should still carefully review and consider their property, liability, crime and other “traditional” policies in the event of a cyber-incident, and provide notice under those non-cyber policies to ensure that all avenues for potential coverage are exhausted.

  • Emily E. Garrison

    Emily Garrison is an experienced litigator who focuses her practice on insurance recovery and has significant experience handling complex coverage disputes through arbitration and litigation. She has also participated in ...

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