Cyber Insurers Owe Nearly $5M in Covered Losses, Lawsuit Alleges

Cyber Insurers Owe Nearly $5M in Covered Losses, Lawsuit Alleges: A Deep Dive into the Evolving Cyber Insurance Landscape

On August 16, 2025, a high-profile lawsuit filed by Crash Champions, a collision-repair services provider, against several cyber insurers, including Coalition, Arch Specialty Insurance, and Allianz Underwriters Insurance, made headlines in Illinois’ Circuit Court of Cook County. The lawsuit alleges that these insurers owe nearly $5 million in covered losses stemming from a 2023 cyberattack, despite a $10 million policy limit. The case, reported by Law.com, underscores the growing tensions between policyholders and insurers in the rapidly evolving cyber insurance market, where disputes over coverage, exclusions, and payouts are becoming increasingly common. This article explores the details of the lawsuit, its implications for businesses and insurers, the broader context of cyber insurance litigation, and future trends in the United States as of August 19, 2025.

The Lawsuit: Crash Champions v. Cyber Insurers

Case Background

Crash Champions filed its lawsuit on August 14, 2025, seeking to recover $18.1 million in losses from a 2023 cyberattack, which it claims are partially covered under its $10 million cyber insurance policy. The company alleges that the insurers—Coalition, Arch Specialty, and Allianz—either failed to reimburse the full amount owed or denied coverage altogether, breaching their contractual obligations. The complaint, lodged in Illinois’ Circuit Court of Cook County, accuses the insurers of mishandling claims related to business interruption, data recovery, and third-party liabilities, including costs for forensic services and legal defense.

The cyberattack, though not detailed in public filings, reportedly disrupted Crash Champions’ operations, leading to significant financial losses. The company argues that the insurers’ refusal to pay the nearly $5 million in covered losses violates policy terms, particularly given the explicit coverage for ransomware, business email compromise, and data breach-related expenses. The lawsuit also seeks declaratory relief to clarify the scope of coverage and punitive damages for alleged bad faith, a claim that could escalate the insurers’ liability if proven.

Key Allegations

Crash Champions’ complaint highlights several issues:

• Underpayment or Denial of Claims: The company alleges that Coalition and its co-insurers either reimbursed nothing or paid far less than required, despite clear policy provisions covering cyberattack-related losses.
• Bad Faith Conduct: The plaintiff claims the insurers engaged in excessive information requests and delays, a tactic seen in other cases like Mr. Cooper v. National Union Fire Insurance (2024), where insurers were accused of stringing policyholders along.
• Policy Misinterpretation: The lawsuit argues that the insurers misapplied exclusions, such as those for “failure to maintain minimum security standards,” to avoid payouts, a common defense strategy in cyber insurance litigation.

Legal Context: The Cyber Insurance Market and Litigation Trends

The Growing Cyber Insurance Market

The cyber insurance market has nearly tripled in size over the past five years, reaching an estimated $12 billion in global premiums in 2024, according to Munich Re. This growth is driven by the increasing frequency and severity of cyberattacks, with ransomware incidents rising 25% year-over-year in 2024. The average cost of a data breach in the U.S. hit $4.88 million in 2024, a 10% increase from the previous year, fueling demand for policies covering first-party losses (e.g., data recovery, business interruption) and third-party liabilities (e.g., lawsuits, regulatory fines).

However, as demand surges, so do disputes. The National Association of Insurance Commissioners (NAIC) reported a 43% loss ratio in 2023, down from 66.4% in 2021, reflecting stricter underwriting and reduced coverage offerings. Insurers are tightening policy language, introducing exclusions like “war clauses” or “failure to maintain” provisions, which often lead to litigation when claims are denied.

Precedents and Parallel Cases

The Crash Champions case echoes other high-profile cyber insurance disputes:

• Sinclair v. CNA and Starr (2024): Sinclair Broadcast sued its insurers for refusing to cover ransomware losses, highlighting disputes over policy interpretation and payout obligations.
• Mr. Cooper v. National Union and Berkshire Hathaway (2024): The nonbank servicer sought $30 million in uncovered losses, alleging bad faith and breach of contract, with National Union agreeing to only $300,000 of the claim.
• Target v. ACE American Insurance (2019): Target’s $90 million cyber insurance program was exhausted, but the company faced further litigation over uncovered losses under its general liability policy, illustrating the complexity of layered coverage.

These cases reveal a pattern: policyholders expect comprehensive coverage, but insurers often cite exclusions or misrepresentation in policy applications to limit payouts. The Crash Champions lawsuit, with its focus on bad faith, aligns with this trend, as plaintiffs increasingly challenge insurers’ claim-handling practices.

Implications for Stakeholders

For Policyholders

The lawsuit underscores the risks businesses face when relying on cyber insurance. Crash Champions’ experience highlights the importance of:

• Thorough Policy Review: Businesses must scrutinize policy terms, especially exclusions for negligence or inadequate security measures, which insurers frequently invoke.
• Robust Documentation: Detailed records of cyberattack impacts, including financial losses and mitigation costs, are critical to support claims.
• Legal Preparedness: Engaging experienced counsel, such as Girard Sharp, which represented plaintiffs in similar cases, can strengthen claims against insurers.

The case may encourage businesses to seek layered policies or higher limits, though premiums for high-risk industries like healthcare and retail are rising due to elevated cyber risks.

For Insurers

Insurers face mounting pressure to clarify policy terms and improve claims processing. The Crash Champions lawsuit could lead to:

• Stricter Underwriting: Insurers may further tighten requirements, such as mandating multifactor authentication (MFA) or regular security audits, as seen in Travelers v. International Control Services (2022), where coverage was denied due to misrepresented MFA protocols.
• Higher Premiums: With 40% of cyber claims denied in 2024, insurers may raise premiums to offset litigation risks, particularly for industries with high data breach exposure.
• Reputation Risks: Allegations of bad faith, as in this case, could damage insurer credibility, prompting calls for regulatory oversight of claims practices.

For the Legal Industry

Law firms specializing in cyber insurance litigation, like DLA Piper or Reed Smith, stand to benefit from the surge in disputes. The complexity of these cases, involving technical cybersecurity issues and nuanced policy interpretations, requires expertise in both insurance law and technology. Firms are also investing in AI-driven tools to analyze policy language and predict litigation outcomes, aligning with the broader trend of revenue intelligence in the legal sector.

Broader Context: The Cyber Threat Landscape

The Crash Champions lawsuit reflects the escalating cyber threat environment. Ransomware attacks, which account for the most common cyber insurance claims alongside business email compromise and funds transfer fraud, have nearly doubled in the healthcare sector since 2022. The 2024 attack on UnitedHealth Group’s Change Healthcare, costing an estimated $2.4 billion, exemplifies the scale of modern cyber incidents. Data breaches compromised 5.5 billion accounts in 2024, an eightfold increase from prior years, per Munich Re, driving demand for comprehensive coverage.

Regulatory scrutiny is also intensifying. The U.S. Treasury Department’s 2020 warning against facilitating ransomware payments has complicated claims, as insurers risk violating anti-money laundering laws. Meanwhile, lawsuits following data breaches, often seeking damages for unauthorized charges, credit damage, and emotional distress, are becoming common, adding to insurers’ third-party liability exposure.

Future Trends: Evolving Coverage and Litigation

The Crash Champions case signals several trends for the cyber insurance market:

• Policy Standardization: Insurers may move toward standardized language to reduce disputes, though exclusions like war clauses (as in Merck v. Insurers, 2022) will remain contentious.
• Regulatory Oversight: Increased scrutiny from state insurance regulators could lead to mandates for transparent claims handling, addressing bad faith allegations.
• AI Integration: Insurers and law firms will leverage AI for risk assessment and claims analysis, improving efficiency but raising ethical concerns about data privacy.
• Litigation Surge: With nearly 40% of claims denied in 2024, more policyholders may sue, particularly in high-stakes industries like automotive repair, healthcare, and retail.

The U.S. Supreme Court may eventually address cyber insurance disputes, particularly on issues like war exclusions or bad faith, given conflicting circuit court rulings. For now, state courts, like Illinois’ in this case, will shape the legal landscape.

Legal and Practical Considerations

For policyholders, securing cyber insurance requires:

• Accurate Applications: Providing truthful information about security protocols, as misrepresentations can void coverage, per Travelers v. ICS (2022).
• Proactive Cybersecurity: Implementing MFA, regular audits, and incident response plans to meet insurer requirements and reduce claim denials.
• Legal Expertise: Engaging firms with cyber insurance experience to navigate complex claims processes.

Insurers must balance profitability with fair claims handling, adopting transparent communication to avoid bad faith lawsuits. Law firms should invest in training on cyber insurance law and AI tools to stay competitive.

Conclusion: A Test for the Cyber Insurance Market

The Crash Champions lawsuit, alleging nearly $5 million in unpaid losses, highlights the growing pains of the cyber insurance industry as it grapples with rising cyber threats and policyholder expectations. The case underscores the need for clearer policy terms, robust cybersecurity, and fair claims practices to bridge the gap between insurers and businesses. As litigation surges, driven by disputes over coverage and bad faith, the U.S. legal system will play a critical role in defining the boundaries of cyber insurance. For now, this lawsuit serves as a wake-up call for policyholders and insurers alike, signaling that the path to financial protection in the digital age is fraught with legal and operational challenges.

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Citations:

• Law.com, “Cyber Insurers Owe Nearly $5M in Covered Losses, Lawsuit Alleges,” August 16, 2025.
• ProgramBusiness, “Sinclair Files Lawsuit Against Cyber Insurers,” November 6, 2024.
• Munich Re, “Cyber Insurance: Risks and Trends 2025,” April 3, 2025.
• National Mortgage News, “Mr. Cooper sues its insurance providers over cyber breach,” November 19, 2024.
• Reed Smith LLP, “Pressure points in cyber insurance policies revealed in litigation,” June 6, 2023.