Insurers at Lloyd’s of London don’t have to pay more than $1 million in payroll overpayments a company made after its operations were disrupted during a ransomware attack, an appeals court ruled.
In Villa Financial Services LLC v. Underwriters at Lloyd’s of London, the Appellate Court of Illinois, First Judicial District, affirmed a lower court ruling that the cyber liability policy that nursing facilities management company Villa bought from Lloyd’s only covered “necessary” extra expenses.
The case stems from a 2021 ransomware attack on Ultimate Kronos Group, a payroll compliance company that Villa used. As a result of the attack, Villa was unable to calculate its Dec. 14, 2021, payroll obligation, so it used data from prior payroll periods, resulting in an overpayment of $1.2 million to employees.
Villa submitted a claim to its insurers at Lloyd’s, but the insurers denied it, saying the overpayment was not an “extra expense” under the policy.
According to the ruling, the policy defines extra expense as “reasonable sums necessarily incurred … to mitigate an interruption to and continue your business operations.”
Villa did not have an obligation to make the excess payments, the court ruled.
“The only funds that were ‘necessary’ for plaintiff to pay out were those earned by its employees. Those extra funds paid out by plaintiff were not ‘necessary’ for plaintiff to continue its operations,” the ruling states.
