Last February, the City of Hamilton, Ontario, fell victim to a ransomware attack that crippled 80% of its network. The attackers demanded $18.5 million, which the city refused to pay. When Hamilton turned to their cyber insurance for the $18.3 million recovery bill, they received devastating news: Claim denied. The reason? Incomplete multi-factor authentication deployment.
This isn't an isolated incident. Across the US, UK, and Canada, cyber insurance claims are increasingly being rejected or not paid out in full. And it’s not because the incidents fall outside coverage, but because organizations fail to meet the minimum technical control expectations that they indicated (or believed) were in place.
After years of premium increases and tightening coverage, many organizations may believe the hardest part was getting cyber insurance. The reality is more sobering: Having a policy means nothing if you can't prove your controls were properly deployed and configured when an incident occurs. The problem is rarely a lack of security tools, but rather hidden gaps or the inability to provide evidence to their efficacy—leading to denials.
Missing technical controls that lead to the breach
When making a claim, insurers assess security controls with forensic precision. Partial implementations, gaps in coverage, or unprotected endpoints can void even large policies. The standard isn’t “mostly secure”—it’s comprehensive, verifiable protection across all systems.
The Hamilton, Ontario case is a prime example here, with MFA coverage being a consistent factor in whether claims are paid out. In 2022, Travelers went to court with their policy holder, International Control Systems (ICS). The suit argued that MFA was only in place for firewall, but not their servers—where the breach originated—and ultimately voided the policy.
Similarly, endpoint detection and response (EDR) tools are typically required by insurers to mitigate the risk they take on when signing a policy. When ransomware attacks originate at unmanaged or unprotected devices (as 90% do) it's unlikely to result in a successful claim.
The reality is, it's unlikely you'll qualify for cyber insurance with fundamental technical controls like EDR, MFA, or vulnerability scanning. But if the tools are supposedly in place, why are claims denied?
Misrepresenting the state of your security controls
Among questions of compliance and previous breaches, inquiries into those technical controls make up the bulk of cyber insurance applications. Intentional or not, misrepresenting the presence or efficacy of those controls is typically the leading cause of denials or failed renewals.
Cottage Health’s case with Columbia Casualty highlights this risk. After patient data was exposed online, insurers denied coverage under minimum practices clauses, citing misrepresentation of Cottage's security capabilities. In their circumstance, their application came into conflict with regard to how often vulnerabilities were patched and due diligence practices.
Just as if you were buying car insurance, applications must reflect up-to-date security measures. Claims about patching schedules, vulnerability management, or EDR deployment must match the actual state of operations. Even small inaccuracies can void coverage if they impact underwriting decisions.
Process and procedure failures
Even flawless technical controls can’t save claims if organizations don’t follow the documented policies and procedures they've adopted and shared with underwriters. Notification delays, evidence gaps, and unapproved vendor use are common grounds for denial.
Like many compliance frameworks that require breach notifications to impacted individuals, insurance policies typically layer time constraints onto any claim made. Most cyber insurance policies only cover claims if they’re reported quickly—often during the same policy period. Courts have backed insurers that refused to pay when a company waited too long to notify them, even if the delay didn’t cause any direct harm to the insurer.
While many claims are going to be made in the event of a breach where organizations have lengthy incident response processes to attend to, following processes and gathering evidence is essential. Logs, configurations, and communication records must be preserved not only to meet underwriter requests, but often compliance requirements as well. Evidence Preservation: Essential for Claims
Without proper evidence, claims can be denied even if controls worked as intended. Logs, configurations, and communication records must be preserved during incidents to meet forensic requirements.
Avoiding insurance claims starts with validating existing security
It can be very easy to look at cyber insurance as another "check the box" opportunity. Simply attesting to controls without confirming their full coverage and functionality leaves organizations vulnerable. Validating the presence and effectiveness of technical security controls required by compliance and insurance strengthens overall cyber resilience.
True security comes from ensuring controls are properly configured, effective, and comprehensive. This proactive approach not only improves resilience to ideally avoid an incident, but ensures insurance coverage can hold firm when it matters most.
Prelude helps organizations validate the coverage, configuration, and efficacy of these controls, simplifying how you can reduce your risk and improve your resilience against ransomware.
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