Soft Market Language Failures: Systemic Drafting Errors in Current Cyber Property and Bodily Injury Extensions

Introduction

The commercial cyber insurance market currently exists in a state of paradox: coverage has rarely been more affordable and expansive, yet the underlying risks have never been more structurally dynamic and amorphous. While pricing is often discussed in the context of a soft market, a perfect storm now exists where new coverages are created rapidly and, in some cases, without sufficient cross-departmental vetting. This is not a failure of intent, but a consequence of the systemic pressures of rapid market growth and the decoupling of cyber and P&C underwriting silos. The institutional pressure to scale has led to a lack of cross-departmental integration.

As cyber groups have specialized and separated from the greater commercial property and casualty insurance market, the resource and knowledge gap is most evident at the intersection of cyber and physical property and casualty risks. The most prolific manifestation is the current influx of affirmative cyber bodily injury and cyber property coverage grants. This article examines the origin of that coverage push, reviews the prevailing drafting schools, and identifies the structural and regulatory risks embedded in current approaches. The central issue is “Failure by Inclusion:” in attempting to follow early soft-market endorsements, many risk bearers have adopted language that is broader than the available P&C coverage and less protected by the traditional P&C exclusions that were built to control those exposures. As P&C markets continue strengthening cyber exclusions, many cyber risk bearers that believe they are writing excess or contingent coverage may, in fact, be functioning as the primary market for property and casualty exposures excluded under a variety of policy forms.

Baseline Before the Current Soft Market

The intersection of cyber coverage and P&C is not new. As early as the 1980s, risk bearers provided nascent cyber peril coverage via endorsements attached to commercial P&C policies. While affirmative cyber coverage eventually migrated to standalone cyber policies, similar ancillary provisions remained within Miscellaneous Professional Liability (MPL) forms. The original intent of standalone cyber coverage included the absolute exclusion of property and bodily injury (BI/PD) perils. Cyber policies, whether using “absolute” or “for” exclusion lead-in language, consequently, utilize broad language to exclude all types of BI/PD perils. This broad exclusion served a purpose: it prevented potential coverage gaps caused by over-specificity, as BI/PD concepts are underwritten and covered differently across casualty and property forms.

The Current Soft Market and the “Contingent Gap”

In the current post-ransomware soft market, a significant portion of the market has added affirmative cyber-BI/PD coverage by endorsement or within newer post-2023 base forms. While some carriers utilize proprietary, vetted coverage, a substantial segment relies on language ported, mainly from MPL-contingent endorsements that lack rigorous cross-application review.

These MPL-influenced BI/PD coverages create a dangerous expectation gap for carriers. They are often marketed as minor sublimit extensions, but because P&C markets have aggressively expanded their cyber exclusions and cyber forms often use generic BI/PD coverage grant language, they can cause a cyber policy to provide broader, more favorable coverage than what many policyholders can obtain in the traditional P&C market. This is not “Silent Cyber,” or failure by omission. It is “Failure by Inclusion:” the policy is intended to respond, but the language used is mismatched to how P&C underwriters define, price, exclude, and aggregate the same perils.

The Current Drafting Schools

School 1: Mirroring the MPL Contingent BI/PD Endorsement School
On a numerical basis, most affirmative third-party BI/PD coverage currently in the market follows a simple structure: (i) a short insuring agreement, (ii) a modification to the BI/PD exclusion, and (iii) a new defined term for covered bodily injury or property damage. That definition usually mirrors the exclusion language. These grants are typically easy to identify because they are brief (usually only a single page) and frequently but not always use the term “contingent.” They often closely resemble contingent MPL endorsements, but the trigger “Professional Services” is often replaced with “Security Incident/Cyber Incident or the coverage grant is silent on the triggering incident.” The issue with this structure is that porting nearly verbatim language between different policies is structurally fragile. MPL professional risk differs materially from cyber-physical risks, including such concepts as IoT-enabled physical damage that were never contemplated on an MPL Endorsement often used for property managers. As a result, the cyber language often fails to account for exclusions such as workers’ compensation, wage-and-hour liability, and other P&C limitations that are not typically embedded in cyber forms but are more common on the MPL policy forms the language originates from.

School 2: The Simple Carveback School
This approach modifies the base BI/PD exclusion by adding a carveback for loss resulting from a “security incident/cyber incident,” usually subject to a sublimit. The method is operationally simple, but it often fails to clarify whether the carveback applies to first-party loss, third-party loss, or both, and how it interacts with valuation and proof-of-loss clauses. That omission is understandable in an MPL context because the policy is primarily a third-party form. It is more problematic in a hybrid policy such as cyber because the same carveback will affect both first-party and third-party coverage if the third- and first-party triggers are not referenced.

School 3: The Dedicated Insuring Agreement and Conditions School
The third—and, in the author’s view, the most resilient—school utilizes dedicated insuring agreements, definitions, conditions, and exclusions. This minority approach may appear similar to the first school, but its text differs in critical ways. Instead of relying on the broad BI/PD exclusionary language to define the covered risk, these risk bearers precisely identify the specific property or casualty concepts they intend to cover and then carve only those defined concepts out of the exclusion. They also address valuation differences and exclusion gaps between P&C forms and typical cyber forms. The result is a longer endorsement, but it is structurally stronger because it adapts the coverage being granted to the cyber form itself.

Current Drafting Risks

Risk 1: Undefined Coverage Grants Create Broad Exposure

The most significant issue in School One and School Two is the failure to define the coverage grant independently of the existing exclusion language. Typically, carriers describe the intended coverage by reference to CGL-style hypothetical examples, such as a cyber incident causing a failed elevator bodily injury or property damage. The actual language, however, is frequently much broader than those examples. Because many policies rely on the BI/PD exclusion(s) to define the new affirmative coverage grant, the coverage inherits the exclusion(s) language. However that language was originally drafted to remove a broad universe of P&C exposure, including policies as varied as workers’ compensation, life insurance, commercial first-party property, automobile, and wage-and-hour exposure. Thus, by using that same broad exclusionary language to define a new sublimited affirmative grant, the policy extends across multiple P&C coverage classes that the cyber underwriter did not price or intend to assume. Without adding additional exclusions to remove some or all these perils the carveback provides tremendous coverage.

The problem is amplified in cyber because the MPL endorsements were designed for discrete professional services, not kinetic risks such as a malicious actor compromising an IoT device to cause physical harm. Without strict definitions of what “property” the policy is extending too cyber markets may reach exposures associated with automotive, marine, digital asset, or other property regimes. Some concepts like digital assets may be considered property and not securities in certain jurisdictions. In those jurisdictions there’s a potential for coverage that’s otherwise excluded from the policy but may be covered via drafting imprecision.

When courts encounter undefined terms such as “property” or “bodily injury,” ordinary canons of insurance-policy construction and the prevailing case law in many jurisdictions may resolve ambiguity against the drafter. The lack of precision is therefore not merely a drafting problem; it is a direct liability issue and a potential long-tail risk to the carrier.

Cyber policies typically have valuation clauses for business interruption and crime loss. But typical valuation clauses stand in stark contrast and do not mirror the valuation clauses needed and used for bodily injury and property loss. For instance, concepts like Actual Cash Value and depreciation are not typically addressed in cyber policies, especially in the third-party context, because business interruption and crime coverages are first-party coverage. When BI/PD claims inevitably arise, the valuation of the loss may therefore become problematic during adjustment.

Risk 2: Incompatibility with P&C Exclusions Creating Unintentional DIC Coverage

MPL policies and cyber policies contain significantly different exclusion architecture in their respective base policy forms. For that reason, the MPL Contingent Bodily Injury endorsements did not need to solve for every P&C exclusion that becomes relevant when BI/PD language is imported into cyber forms. For example, many MPL policies contain boilerplate exclusions for workers’ compensation, wage-and-hour liabilities, and personal-lines intersections. When MPL-style BI/PD coverage was moved into cyber forms, it appears that many did not recognize that that the MPL Endorsements were relying on several base form exclusions to dramatically limit the coverage grant there. That omission to add exclusions when converting to a cyber policy form can convert cyber policies into unintended Difference in Conditions coverage. Even where the cyber coverage is written as “contingent” over P&C insurance, the cyber wording now on many policy forms is broader than the underlying P&C policy (and the MPL endorsements that language came from) and therefore potentially primary rather than excess for a wide variety of expensive litigation actions that cyber panels by design are not designed to handle.

Risk 3: “Contingent Over Nothing” Contingent and Other Insurance Conditions Fail When the P&C Coverage Disappears

Many cyber forms rely on “contingent” triggers that presuppose the existence of valid and collectible underlying P&C insurance. The original MPL endorsements and some of the cyber endorsements require that the policyholder maintain property and casualty coverage as a contingency of the coverage. However, at the same time cyber carriers expanded these endorsements, P&C carriers conversely strengthened their cyber, privacy, and artificial-intelligence exclusions. The result is a contingency trigger issue, if the underlying P&C tower excludes the cyber-related BI/PD event, the cyber coverage may be contingent over nothing, or it may be forced into a disputed primary role depending on the wording. If the coverage has been eliminated on the applicable property and casualty policy, then the requirement to maintain P&C coverage in most of these cyber bi/pd endorsements becomes irrelevant in practice and the additional protection the insurer was anticipating to reduce loss on their cyber book will be ineffective.

Risk 4: Sublimits, Defense Expenses Outside the Limits, and Adjacent Coverages Create Multiplicative Tail Risk

Because a policy must be read to determine coverage, current forms also create overlap risk that is not addressed by many of the current grants. A significant example in the soft market is the interaction between small BI/PD sublimit and Additional Defense Limits (“ADL”) for third-party cyber matters. If a policyholder has a $250,000 BI sublimit and a $3,000,000 ADL limit, a covered BI claim may create a post-CiCi Enterprises LP v. HSB Specialty Insurance Co. dispute over whether defense expense availability expands what the carrier intended to be a tightly capped bodily-injury exposure. True coordination of coverage clauses is uncommon in base policy forms and rarely employed via endorsement. ADL is not the only problematic intersection; it merely illustrates how a modest sublimit can become materially larger when read against broader policy architecture.

Cryptocurrency presents a similar drafting issue. Many base policies contain cryptocurrency exclusions or limited carvebacks for ransomware payments and/or crime loss. If cryptocurrency is treated as property by a court or local law, cyber property coverage may create defense-cost or indemnity exposure unless the form clearly states whether digital assets are covered property, excluded property, or subject only to a specific carveback. Since most policies are relying on the exclusion to define the contours of coverage however, it is not always clear that the grant provided will not create a conflict with base exclusions.

Bricking and betterment coverage can also overlap with cyber property coverage. Policies often provide first-party betterment and bricking coverage through carvebacks to the property exclusion. When a third-party cyber-property grant relies on the same exclusionary language, it may unintentionally extend similar betterment or bricking concepts to third-party property claims.

Cyber regulatory coverage may create another mismatch when it intersects with BI/PD grants. CGL policies often exclude government fines, penalties, or compliance obligations, while cyber forms may provide certain penalty coverage. A cyber-physical injury that triggers for instance an OSHA citation, environmental penalty, or health-department investigation could therefore create regulatory-cost exposure not contemplated by the BI/PD sublimit intent but covered by the language in School 1 and School 2.

A final unresolved intersection worth noting involves affirmative BI/PD coverage, spouse or estate language, and Insured v. Insured exclusions. If an employee is seriously injured by a cyber incident, estate language may extend coverage for third-party loss claims. Where the spouse or estate is treated as an insured, the IVI exclusion may bar the claim; where it is not (which on several policies the word insured is not expressly used), the carrier may have to rely on employment-liability or other exclusions. Those exclusions varies materially by form and endorsement, making it difficult to ascertain the extent of the cover grant.

Conclusion

The cyber insurance market must move from passive to proactive posture on language by adopting dedicated insuring agreements with coverage grant definitions rather than relying on ported, legacy language from other policy forms and using an exclusion to define coverage. This transition requires addressing the systemic “Failure by Inclusion” where generic, MPL-inspired endorsements create broader, unintended coverage grants that misalign with the realities of modern P&C market exclusions.

Specifically, insurers must correct the structural inadequacies that have transformed cyber policies into potentially unintended Difference in Conditions (DIC) agreements—increasingly that are “contingent over nothing” due to aggressive cyber exclusions in underlying P&C towers. Furthermore, the industry must account for the complex, cumulative liabilities arising from the interplay between sublimits, additional defense expenses, cryptocurrency classifications, and intricate policy intersections like estate/IVI clauses and regulatory penalties. The solution demands a departure from siloed product drafting; cyber groups must work with experienced P&C underwriters and their product counsel to ensure that contractual language is robust, definitions are precise, and risk transfer remains affirmative, predictable, and structurally sound in an increasingly complex threat environment.

Meet the Author

Jason Curreri

General Counsel and Head of Wordings, Elpha Secure

Jason Curreri is currently serving as General Counsel and Head of Wordings at Elpha Secure.  Jason has previously served in global cyber wordings and North American wordings roles at several carriers.  In addition, Jason has served on several industry wordings committees and is a member of Seton Hall Law’s Privacy Advisory Board.