16.3 Cyber, Aviation, and Other Specialty Lines

Cyber Liability Insurance

Standard CGL forms do not respond to data breaches. The ISO CG 21 06 exclusion (Access or Disclosure of Confidential or Personal Information) removed personal-and-advertising-injury coverage for breach of electronic data, creating a deliberate gap that cyber liability policies fill. Cyber is almost always written on a claims-made basis, so the claim must be first made during the policy period (or extended reporting period) and the wrongful act must postdate the retroactive date.

Cyber coverage splits into two halves. First-party coverage pays the insured's own costs: data restoration, business interruption from a network outage, cyber-extortion (ransomware) payments, and breach-response expenses such as notification and credit monitoring. Third-party coverage pays the insured's liability to others: data-breach lawsuits, regulatory fines and defense, and media/content liability.

Aviation Insurance

Aviation policies blend property and liability in one contract. The property side is hull coverage, written either as all-risk in flight, taxiing, and not in motion, or on a narrower not-in-motion basis that covers the aircraft only while parked. The liability side covers bodily injury and property damage to others, split among aircraft (third parties on the ground), passenger, and medical exposures.

The heavily tested wrinkle is the passenger sublimit. Aviation liability is often written with a combined single limit (CSL) for bodily injury and property damage, but a per-passenger sublimit caps the recovery for any one passenger. When a crash injures multiple passengers, the per-passenger sublimit binds before the overall CSL is reached, so candidates must apply the smaller per-person cap first.

DIC and Equipment Breakdown

A Difference in Conditions (DIC) policy is a wrap-around that fills gaps in standard property coverage. Most commonly it adds the two perils standard forms exclude — flood and earthquake — and broadens coverage to an all-risk basis over an underlying named-peril program. DIC sits over, not instead of, the primary property policy and is excess of the perils it shares.

Equipment Breakdown coverage (historically Boiler and Machinery) covers sudden and accidental mechanical or electrical breakdown of pressure vessels, electrical systems, and machinery — perils a commercial property form excludes as wear, mechanical failure, or artificially generated current. It pays the resulting property damage and the business interruption that follows, and uniquely funds loss-control inspections of boilers and equipment, often satisfying jurisdictional inspection requirements.

Coinsurance on Specialty Property Lines

Many specialty and commercial property covers carry a coinsurance clause that penalizes underinsurance. The candidate must apply the standard formula: recovery equals (carried limit divided by required limit) multiplied by the loss, capped at the policy limit and reduced by any deductible.

Worked example: a property worth $1,000,000 carries an 80 percent coinsurance clause, so the required limit is $800,000. The insured carries only $600,000 and suffers a $200,000 loss. Recovery = ($600,000 / $800,000) x $200,000 = $150,000, less any deductible. The $50,000 shortfall is the coinsurance penalty the insured absorbs for under-insuring. Equipment breakdown and DIC programs commonly apply this same arithmetic.

Other Specialty Lines and How They Interlock

Several additional specialty covers round out this chapter. Earthquake insurance, like flood, is excluded by standard property forms and is written as a standalone policy or DIC peril; it characteristically uses a percentage deductible (for example, 10 or 15 percent of the building limit) rather than a flat dollar amount, which can leave a large uninsured layer on a costly structure. Watercraft and yacht policies blend hull and protection-and-indemnity liability much as aviation blends hull and aircraft liability.

The practical lesson is that specialty lines exist precisely to cover what the standard package excludes, so the exam tests whether you can route an exposure to the correct form: flood to the NFIP or excess flood, earthquake to a quake or DIC policy, mechanical breakdown to equipment breakdown, a data breach to cyber, and an aircraft to aviation. When a question describes a loss the homeowners, dwelling, CGL, or commercial property form clearly excludes, the answer is almost always the matching specialty line — and any recovery may then be reduced by a coinsurance clause or a per-unit sublimit before the policy limit is reached.

When reviewing specialty lines, build a one-line trigger for each: cyber is claims-made and breach-driven; aviation pivots on the per-passenger sublimit binding before the CSL; DIC adds flood and earthquake; equipment breakdown covers sudden mechanical/electrical failure plus resulting income loss and inspections; and earthquake uses a percentage deductible. Layered-limit and coinsurance arithmetic then determines the actual payout, so always compute the sublimit or coinsurance reduction before stating the recovery.

One more high-yield point: cyber and many specialty policies carry a separate retention rather than a deductible, and ransomware sublimits are increasingly common, so the limit shown on the declarations may not be the most the insured can collect for an extortion event. Always read the schedule of sublimits before quoting a cyber recovery.