1. Forms
2. CY
3. CY-10-03

What the Form Is

The CY 10 03 Nonbinding Arbitration endorsement is an optional addition to an ISO Commercial Cyber Insurance Policy. Its primary purpose is to provide a structured, alternative dispute resolution (ADR) mechanism when the insured and the insurer disagree on matters of coverage related to a claim. This endorsement outlines the procedures for initiating and conducting arbitration, including the selection of arbitrators and the rules governing the proceedings. Importantly, the outcome of this arbitration is non-binding, meaning that either party retains the right to pursue further legal action if they are dissatisfied with the arbitrator's decision. It serves as a way to obtain an objective third-party opinion on the dispute without immediately resorting to more costly and time-consuming litigation.

Classes of Business It Applies To

This endorsement can be attached to cyber insurance policies for a wide array of businesses and organizations, as cyber risks are prevalent across nearly all industries. It is not specific to any particular class of business but rather to the cyber insurance policy itself. Real-world examples where this endorsement could be invoked include:

• A financial services firm in dispute with its insurer over the extent of coverage for losses stemming from a funds transfer fraud incident.
• A manufacturing company that disagrees with its insurer's assessment of business interruption costs following a ransomware attack that halted operations.
• A retail business that has a claim denied for a data breach, where the insurer and insured interpret policy language differently.

Special Considerations

Several important points should be considered regarding the CY 10 03 endorsement:

• Non-Binding Nature: The most critical aspect is that the arbitrator's decision is advisory and not legally enforceable unless both parties subsequently agree to accept it. This allows for a mediated discussion and expert opinion without closing the door to litigation.
• Cost and Time Efficiency: While generally less formal, expensive, and time-consuming than court proceedings, non-binding arbitration still involves costs (e.g., arbitrator fees, legal representation) and a time commitment.
• Trigger for Use: This endorsement is typically invoked when direct negotiations between the insured and insurer over a claim dispute reach an impasse. This could relate to whether a claim is covered, the amount of the covered loss, or the interpretation of policy terms and conditions.
• State-Specific Rules: While this is a standard ISO form, the enforceability and specific procedures for arbitration can sometimes be influenced by state laws. The availability of the CY 10 03 11 21 edition includes a specific list of states. The 01 18 edition was withdrawn in most states, with remaining applicability in CA and VI.

Key Information for Agents and Underwriters

Insurance professionals should be aware of the following when dealing with the CY 10 03 endorsement:

• Client Communication: Agents should clearly explain to clients that this endorsement offers a preliminary step for dispute resolution, emphasizing its non-binding nature and distinguishing it from binding arbitration (which might be offered via a different endorsement, such as CY 10 04).
• Risk Assessment: The inclusion of this endorsement does not alter the fundamental cyber risks insured but provides a procedural mechanism for handling disagreements.
• Underwriting Perspective: Underwriters may view the inclusion of a non-binding arbitration clause as a reasonable approach to dispute resolution, potentially reducing the likelihood of immediate litigation. It does not typically have a direct impact on the premium calculation for the underlying cyber coverages.
• Procedural Clarity: The endorsement aims to bring clarity and a defined process to disputes, which can be beneficial for both the insurer and the insured in managing expectations and potential conflict.