Cyber liability insurance covers financial losses that result from data breaches and other cyber events. Policies vary widely because most insurers that offer cyber coverage use forms they’ve developed themselves. In addition, many policies include both first-party and third-party coverage.

First-party coverages pay out-of-pocket expenses that a firm directly incurs as a result of a breach. Third-party coverages apply to damages or settlements a business is obligated to pay due to claims or suits for injuries resulting from the company’s actions or failure to act. For instance, a client sues his therapist for negligence after a hacker breaches the therapist’s computer system, steals the client’s treatment records, and releases them online.

Many cyber policies provide a range of coverages, some of which are automatically included and others optional. In addition, a separate limit may apply to each coverage. For example, some coverages may apply only after the insured business has paid a deductible or retention.