MERCK & CO., INC.

(MRK)
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Merck's $1.4 Billion Insurance Win won't be possible any more with Lloyd's cyber war exclusion clauses

01/20/2022 | 10:53am EDT

Peter Groucutt, Co-founder at Databarracks

Merck & Co. has won its legal dispute with its insurer over a refusal to pay out on a claim for losses due to the NotPetya ransomware.

The NotPetya attack was attributed to Russia. It was aimed at Ukraine, but it had a massive impact on companies around the world.

Insurers have refused to pay out on the basis of the "war exclusion" clause in its policies. That resulted in companies suing their insurers for refusing to pay out. In addition to Merck, Mondelez has also taken action against its insurer.

The court in New Jersey ruled that the war exclusion clause did not apply because it applied to armed conflict rather than cyber warfare.

Lloyd's cyber exclusion clauses

The timing of this ruling is particularly interesting because it comes just after Lloyd's issued its new cyber war and cyber operation clauses.

The new clauses from Lloyd's favour the insurers with broader definitions of cyber activities that can be excluded from coverage.

Traditional war exclusion clauses don't address some of the particular challenges raised by cyber warfare.

Extending the reach to include "cyber operations" covers more activities. There is a lot going on between nation states that doesn't qualify as "war". Occasionally that spills over and affects organisations who might want to claim on their cyber insurance (as with NotPetya).

Attribution is another challenge because it is not always clear who was responsible for an attack. There is understandably a lot of deception in cyber warfare, with attackers leaving misleading breadcrumbs pointing to different attackers or nations. These clauses allow the insurer to determine attribution if the government does not or "takes an unreasonable length of time to". That seems to be a dangerous case of checking one's own homework.

There is another challenge of attribution in that cyber groups are often loosely affiliated with a government. It is not always clear if they are directly controlled by or sponsored by the government. Previously, that distinction would be more important. Again, these new clauses widen the net with "those acting on its behalf" working as a catch-all for these kinds of relationships.

Ultimately, in future businesses will find that the parameters for a payout are narrowing, shifting the emphasis for protecting data and operations onto the victims.

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(C) 2022 M2 COMMUNICATIONS, source M2 PressWIRE

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Financials (USD)
Sales 2022 57 872 M - -
Net income 2022 15 235 M - -
Net Debt 2022 18 007 M - -
P/E ratio 2022 15,5x
Yield 2022 2,97%
Capitalization 237 B 237 B -
EV / Sales 2022 4,41x
EV / Sales 2023 4,35x
Nbr of Employees 67 500
Free-Float 70,6%
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Last Close Price 93,75 $
Average target price 96,04 $
Spread / Average Target 2,45%
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Managers and Directors
Robert M. Davis President, Chief Executive Officer & Director
Caroline A. Litchfield Chief Financial Officer & Executive Vice President
Kenneth C. Frazier Executive Chairman
Dave Williams EVP, Chief Information & Digital Officer
Lisa LeCointe-Cephas Chief Ethics & Compliance Officer, SVP
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