Pipes Up, Inc., a large plumbing contractor, severs the main feeder cable to a large office building while excavating a trench to install a new sewer line. The resultant current surge damages the computer and electronic equipment of the tenants, most of whom are very dependent on their computer systems. Claims are made against Pipes for:
 • Repairs to the feeder cable  
 • Damage to computer hardware  
 • Damage to phone systems  
 • Loss of electronic data and programs  
 • Resultant loss of business
  What coverage does Pipes have under its CGL policy (ISO form CG 00 01 12 07)? Pipes’ liability for damage to the feeder would be covered—the underground excavation exclusion was removed from the CGL policy in the 1980s. There’s an endorsement that can be used to restore the exclusion, but it isn’t part of Pipes’ policy. Liability for physical damage to the computers and phone systems is also covered. The problem is the damage to electronic data and programs and the resultant interruption of the tenants’ operations. CGL policies cover property damage liability claims arising from physical damage to tangible property. Insurers always contended that electronic data was not tangible property. In a decision that shook the insurance industry, an Arizona court in 2000 held that loss of electronic data triggered a covered loss.1  
ISO was quick to react, modifying its property and liability policies to eliminate electronic data damage claims. In the CGL policy, ISO did this by adding the following sentence to the definition of property damage:   
 “For the purposes of this insurance, electronic data is not tangible property.“   
 Since property damage liability is tied to damage to tangible property, this eliminates coverage for claims based on loss of or damage to electronic data. To further insure that these losses wouldn’t be covered, ISO added exclusion 2 p. It reads:   
 2. This insurance does not apply to: …p. Electronic Data Damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.   
 It’s important to note the very broad definition of electronic data: As used in this definition, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment. Mr. Pipes was not happy that he didn’t have coverage for these multiple claims. The day after receiving a declination letter, he muttered to an insurance-broker golfing buddy (who was not his current agent) that: “Insurance companies are happy to take my premiums, but they don’t want to pay my claims.” After listening to his tale of woe, his golfing buddy pointed out that the fault was with his present insurance broker, not the insurance company. Was Buddy right? Did he become the new broker for Pipes Up?   
 Buddy was right, and do you think he had any trouble getting a broker-of-record letter? The now former broker’s error was in not having the Electronic Data Liability (CG 04 37 12 04) endorsement attached to the policy.   
 The Electronic Data Liability endorsement changes exclusion 2 p to read as follows:   
 2. This insurance does not apply to: …p. Electronic Data  
 Damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate “electronic data” that does not result from physical injury to tangible property (emphasis added). Attaching this endorsement would have covered the claim for damage to electronic data because the loss of data resulted from the severing of the feeder cable and that’s “physical injury to tangible property.” This exposure isn’t limited to contractors— although they’re the first ones that come to mind. Building owners and tenants could be sued for loss of data arising out of repairs done by them or on their behalf or fires alleged to be due to their negligence. The list goes on and on.   
 I emailed David Ford, a computer guru I know (he’s married to my daughter), for his thoughts about this. He wrote back: “…most large companies in dataintensive industries would have sophisticated battery back-up and surge protection in place to guard against such accidents. Also, they’d probably have data redundancy and back-up systems to make sure “mission-critical” data survives in the event of a fire, explosion, flood, terror/cyber attack, or coffee spilled in the wrong place. But, hey, you never know — sometimes all that fancy stuff doesn’t work and they lose their data anyway!”   
 As an example of the possible breadth of the exposure for damage to electronic data, he came up with this:   
"…then there’s the pet shop downstairs from a data services company, whose white mice get loose in the walls and chew through all the Ethernet cables at just the wrong moment. Result: Fried mice and lost bytes.“   
 Just about any insured can face an electronic data claim. The endorsement can enable you to close a gap in your clients’ coverage and open the door to a discussion of coverage for loss of electronic data by other than physical injury. This is important for your clients’ own data as well as their liability for negligently transmitting malicious code, viruses, cyber-attacks, etc. that damages others.   
 And have you looked at your exposure to electronic data loss?