1. Forms
2. CY
3. CY-10-04

What the form is

The CY 10 04 Binding Arbitration endorsement is an optional provision that can be added to an Insurance Services Office (ISO) Commercial Cyber Insurance Policy. Its primary function is to stipulate that in the event of a coverage dispute between the insured and the insurance company, the matter will be resolved through binding arbitration rather than through the court system. This means an impartial arbitrator or panel will hear the case and make a decision that both parties are legally required to accept, with very limited grounds for appeal.

Classes of business it applies to

This endorsement can apply to any class of business that has an ISO Commercial Cyber Insurance Policy and agrees to this method of dispute resolution. Examples include:

• Technology Companies: Software developers, IT service providers, data hosting companies.
• Healthcare Providers: Hospitals, clinics, and other organizations handling sensitive patient health information.
• Retail and E-commerce: Businesses processing online payments and storing customer data.
• Financial Institutions: Banks, credit unions, and investment firms managing financial data.
• Professional Services: Law firms, accounting firms, and consultants handling confidential client information.

Essentially, any organization purchasing a cyber policy that prefers or is required (in some specific contexts or jurisdictions) to use binding arbitration for dispute resolution might use this endorsement.

Special considerations

• Finality of Decision: The most significant aspect of binding arbitration is that the arbitrator's decision is final and legally enforceable. This can lead to quicker resolutions and potentially lower costs compared to litigation, but it also means waiving the right to a trial by jury and most avenues of appeal.
• State-Specific Rules: The availability and enforceability of binding arbitration clauses can vary by state. The 01 18 edition of this form was noted as being withdrawn in states except for California, indicating its use might be limited or subject to specific state regulations.
• Agreement: Both the insurer and the insured must agree to add this endorsement to the policy.
• Selection of Arbitrator: The endorsement typically outlines the process for selecting a neutral arbitrator or panel.

For example, if a tech company with this endorsement on their cyber policy suffers a data breach and disputes the insurer's coverage denial for a portion of the claim, they would proceed to binding arbitration as outlined in the endorsement, rather than filing a lawsuit.

Key information for agents and underwriters

• Agents: It is crucial for agents to clearly explain the implications of binding arbitration to their clients, ensuring they understand they are waiving their right to a court trial for coverage disputes. They should also verify the current applicability and acceptance of this endorsement in the relevant state.
• Underwriters: Underwriters should be aware of the insurer's stance on binding arbitration and whether this endorsement is actively offered or encouraged. While it can streamline dispute resolution, it also means ceding decision-making to an arbitrator. They need to understand if this endorsement is mandatory in certain programs or jurisdictions (like its previous specific status in California ). The presence of a binding arbitration clause might be viewed as a way to manage litigation costs, which could indirectly influence the overall risk assessment or claims handling protocols, though it typically doesn't directly alter the premium for the endorsement itself. Underwriters should also be mindful of any state-specific laws that may impact the use or wording of such an endorsement.