Good News for Companies as Court Reverses Insurance Decision

A company which suffered a series of misfortunes, including the loss of one computer in a burglary and two personal computers falling victim to a computer virus, has now won its claim for compensation from its insurers.

The loss to the company was catastrophic as the mishaps meant it lost every copy of the source code of the software it sold. The insurers had refused to pay up because the policy contained a clause that excluded losses due to ‘erasure, loss, distortion or corruption of information on computer systems or other records, programmes or software, caused deliberately by… malicious persons’. In the lower court, this was considered to include the writers of computer viruses. Because the company had lost its back-up copies as a result of the virus, the loss was deemed to be uninsured.

However, in the Court of Appeal the judges decided to look carefully at the construction of the exclusion clause which, taken in sum, was clearly intended to relate to circumstances in which the loss was caused by the deliberate action of locked-out workers, rioters and the like, with the ‘malicious persons’ phrase tacked on to the end. They took the view that to add a completely new type of person (i.e. the computer hacker) was not sufficient to bring the losses of the code caused by the corruption of the computers by the virus into the exclusion, even though a writer of computer viruses is clearly a ‘malicious person’.


 

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