Recent cyberattacks on companies like Boston Scientific and Stryker have highlighted the need for tailored cyber insurance policies in the medtech sector. These incidents have disrupted operations and prompted policy reviews. When your clients ask about their coverage, they need clear answers on what their policy covers when systems fail.
What Triggers Business Interruption Coverage?
For your client manufacturing surgical devices, understanding what triggers Business Interruption Coverage is key. Most policies require an "interruption or suspension of business operations" due to a "security failure" or "network security incident." The definition of "interruption" is crucial. Some policies require a full shutdown, while others respond to "impaired" or "degraded" systems. This matters if your client's order processing is down but manufacturing continues.
Also, consider the waiting period. Many policies have a six, eight, or twelve-hour deductible before coverage kicks in. If your client's team restores systems in ten hours, an eight-hour waiting period means only two hours of loss are covered. If it takes three days, the waiting period is less significant.
The method of calculating lost income also varies. Some policies use net profit plus continuing expenses, while others consider "net income that would have been earned." This affects how much financial impact is covered when manufacturing halts but fixed costs continue.
Coverage for Logistics System Failures
If a cyberattack doesn't stop manufacturing but prevents product shipping, policy language is critical. Some policies broadly define "business operations" to include order fulfillment and shipping, while others focus narrowly on "production" or "manufacturing operations."
The Medtronic incident showed why this matters. Their manufacturing and distribution were unaffected because those systems were separate from the compromised corporate IT network. If a policy only covers manufacturing system impairments, a coverage gap could occur if the attack affects systems coordinating shipping or customer orders.
Review the policy's definition of "computer system" to ensure it includes logistics, supply chain coordination, and order management systems, not just production equipment.
Contingent Business Interruption and Customer Losses
If a cyberattack stops your client from shipping, their customers' losses don't count as Contingent Business Interruption. This coverage typically protects the policyholder when a supplier or customer suffers a covered incident disrupting the policyholder's operations.
Your client is the one experiencing the incident. Their customers might have their own Contingent Business Interruption coverage for when your client can't deliver. However, your client's policy won't cover downstream losses to hospitals or surgical centers.
Check if your client faces contractual liability for delayed shipments due to a cyber incident. Some contracts have service-level agreements with penalties. Standard cyber liability coverage may not cover breach-of-contract claims unless the policy specifically includes "failure to supply" language related to cyber events.
Network Segmentation for Medical Device Manufacturers
Network segmentation involves separating IT environments so a compromise in one area doesn't spread. For medtech companies, it's crucial to separate corporate IT systems from operational technology controlling manufacturing and distribution.
The Medtronic incident showed the benefits of segmentation, as their manufacturing continued on isolated networks. In contrast, Stryker's attack affected multiple areas, suggesting less segmentation or a breach across network zones.
Underwriters ask about segmentation to assess whether a single intrusion can disrupt operations or if critical systems are protected. Your client should explain:
- Connections between manufacturing systems and the corporate network
- Controls on remote access to production systems
- Isolation of quality management and regulatory compliance systems
- Impact on order processing if corporate applications go offline
If your client can't answer these questions, it signals weak operational resilience and potential for larger Business Interruption claims.
Does Ransomware Involvement Affect Coverage?
For most modern Stand-Alone Cyber Policies, ransomware involvement doesn't affect coverage. Cyber Extortion Coverage applies whether or not a ransom is paid, and Business Interruption Coverage applies to system unavailability regardless of attack method.
What's more important is whether the policy requires proof that a specific "security failure" caused the interruption. Some older policies or Cyber Endorsements may have causation language that complicates claims if systems are taken offline voluntarily for containment.
Boston Scientific restricted access to systems as part of its response. If a policy requires systems to be "damaged" or "rendered unavailable by an attacker," there could be a coverage dispute. Ensure your client's policy covers "interruption caused by a security failure" without needing the attacker to directly disable systems.
Data Exfiltration and Its Impact on Claims
Data exfiltration, like in West Pharmaceutical Services' incident, expands the claim but doesn't replace the Business Interruption component. It likely triggers multiple coverage sections: Cyber Extortion, Data Restoration, breach response costs, and Business Interruption for disrupted operations.
Boston Scientific's claim might be narrower if no data was stolen and no ransom demanded. However, operational disruption still leads to Business Interruption claims and incident response costs.
Data exfiltration adds regulatory notification obligations, potential defense costs, and third-party liability if stolen data includes patient information or proprietary designs. This can lead to claims in the millions even if downtime is short.
Underwriters' Push for Shorter Policy Periods and Higher Retentions
Underwriters are pushing for shorter policy periods and higher retentions due to increased cyber incidents in healthcare supply chains and medical device manufacturing. When multiple large companies face disruptions, underwriters reassess their exposure.
This often means higher retentions, lower sublimits, or more detailed Pre-Bind Requirements around network segmentation, endpoint protection, and business continuity.
If your client faces these changes, don't push back. Instead, show that their controls are stronger than the sector baseline. Provide evidence of network segmentation, tested incident response procedures, and recovery time objectives that minimize downtime.
Next Steps
For medical device manufacturers or healthcare supply-chain companies, start by reviewing how Business Interruption Coverage defines "interruption" and which systems must be impaired for coverage to respond. Confirm that the policy covers operational disruption regardless of whether systems are taken offline by the insured or the attacker.
Map which systems control business functions to identify where network segmentation exists and which outage scenarios would have the largest financial impact. This forms the basis for better cyber controls and more precise coverage.
