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Risk Scenario

An Insatiable Beast

A beverage maker’s programmable logic computers are destroyed by a cyber worm.
By: | November 2, 2016 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Part One: Who Kicked the Door In?

Executives with Sweet Life are in a self-congratulatory mode.

Having just plunked down $15 million for a new, just-in-time processing and shipping system, the company leadership feels poised for even greater success.

Sweet Life began its existence in a guest house on an estate in upstate New York owned by the parents of company founder Josh Saltwood.Scenario_AnInsatiableBeast

Starting with a then-unknown Kombucha product, the company grew, selling Kombucha, coconut water and a menu of flavored sparkling water sourced from unquestionably pure springs.

Walk into almost any tony yoga studio along the Atlantic seaboard and you would see some bottle or can with the Sweet Life label on it.

“I want to congratulate everyone involved in this effort,” Saltwood tells his assembled leadership team during a celebratory, well-lubricated meal at one of the best vino-centric restaurants in the Finger Lakes.

Smiles all around, except for Anne Margate, the company’s chief risk officer. Saltwood notices her mood and lifts a wine bottle in her direction as if to offer her more.

She waves the bottle off, and bends her head back down to her BlackBerry, typing feverishly.

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Saltwood just shakes his head.

“She worries too much,” he says to himself.

Two days later comes a jolt of reality for Saltwood in the form of a phone call from his CIO.

“We’ve got a breach. Doesn’t look too extensive but we’re moving to identify any lost data and isolate the problem,” the CIO says.

“Alright, keep me posted if you think it’s going to get uglier. I especially want to know if any customer data gets compromised,” Saltwood says.

“Roger, Wilco,” says the CIO.

It’s uglier than either Saltwood or his CIO could possibly know.

What’s hit Sweet Life is a cyber worm that goes by the name of “Purple Moray.” The name of the worm reveals its intent.

The worm carries a payload that is designed to search out and destroy — just like its ravenous sea eel namesake — programmable logic computers that control machine processes, the very thing that Sweet Life just purchased as part of its $15 million manufacturing upgrade.

Purple Moray is also equipped with a rootkit component, making its passage through Sweet Life’s information technology systems virtually impossible to detect. Try as they might, Sweet Life’s IT team feels like it is not seeing the whole picture.

Sweet Life’s CIO picks up the phone and calls a forensics team he knows in Rochester.

“Yep,” says the CEO of the forensics team when he picks up the phone. He’s eating potato chips as he talks.

“Yeah, hi Mark,” says the CIO, who has known the forensics CEO since high school.

“Whatcha’ got?” Mark says, crunching a chip.

“Are you eating?” the CIO says agitatedly.

“I’m hungry. What is it?” Mark says.

The CIO shakes off his irritation.

“We need you to come down here. We’ve had a breach and we’re not sure of the extent of it,” the CIO says.

“We’ll be there this afternoon.”

Part Two: Gut-Wrenching Pain

The CIO initially fails to tell Anne Margate what’s going on. Sweet Life is a bit of an old boy’s club — though all the top brass is under 40 — and Anne is not a member of the club.

Scenario_AnInsatiableBeast

But she makes a point of finding out what’s going on within the company regardless. It’s when the Rochester forensics team shows up that she gets wind of what’s happened.

“When were you going to tell me about this?” she asks the CIO.

“I … ,” he manages to get out before she cuts him off.

“We need to tell our insurance broker,” she says. “I’ll send you an invite.”

“Which is more than you did for me,” she says to herself under her breath as she walks away.

“OK to summarize,” the broker says on the call, “we need a full list of any customers affected, then move to notify those customers. And keep the forensic work going.”

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“I’ll let the cyber policy carrier and the crime policy carrier know that we might have a claim coming,” the broker says.

The next day the chief of operations comes into work to find that Sweet Life’s spanking new manufacturing system is down, all the way down.

“All the computers are dead, boss,” says one of the line foremen.

Anne Margate, who is now fully engaged in the recovery attempt, barges into the company lunch room.

There she finds Mark, the forensics guy, and two of his teammates settling down to a lunch of pepperoni pizza and a very large meatball sub.

“What’s going on?” she says.

“We’re having lunch,” Mark says.

“I know that, I mean with our manufacturing process,” she says.

Mark pauses to wipe some red sauce off of his chin.

“You’re, who again?” he says.

“I’m the risk manager,” she says, trying to control her anger.

“Oh,” he says. “What’s happened is that your operations have been attacked by a cyber worm. It’s called Purple Moray. It’s disabled the programmable logic computers that control your machine processes,” he says.

“Are they merely disabled or destroyed?” she says.

“We’re getting to that,” says Mark. “As soon as we finish lunch.”

Sweet Life’s broker, exercising an abundance of caution, contacts the company’s property carrier to notify it that Sweet Life may have a claim against this policy as well.

“It looks like the damages are far more extensive than we thought,” Anne Margate says on a call with Saltwood and the company’s property underwriters.

After she gets off the phone with her property underwriters, Anne Margate has the sickening feeling that in the event of the damages caused by a computer worm of this nature, her cyber, crime and property policies might not be all that well aligned.

Part Three: All Gone

“Can anybody in this company tell me what’s going on with this Purple Moray worm?” Josh Saltwood thunders into the phone from his vacation home in the Hamptons.

“All we’ve been able to do is identify it, we can’t stop it,” says the exhausted CIO.

Sweet Life’s situation is weakening day by day.

Scenario_AnInsatiableBeast

In addition to disabling or damaging key pieces of manufacturing equipment, the worm, through a second payload, did access and steal customer data; much more data than the company’s IT department initially understood to be taken.

The company has to inform customers, including the largest natural foods retailer in the country, that although it thought it hadn’t lost their data, it turns out they had.

“We know we told you a week ago that your information was OK, but it’s not OK,” the CIO and Margate tell the retailer on yet another painful call.

“This thing is like some kind of insatiable beast,” says Mark, the forensics guy, as he sits at an in-house Sweet Life computer, an open bag of peppermint bark on the desk.

“You want some bark?” he says to Margate, who is sitting beside him trying to learn as much as she can about cyber hack forensics.

“No thanks,” she says.

“I’ve never seen anything like this,” says Mark.

Over time, the forensics team, working in congress with Sweet Life’s IT team, is able to isolate the Purple Moray malware and remediate some of the damage done to the company’s computer-controlled manufacturing system.

Anne Margate, who worries about everything, finds that her concerns about her insurance policies were somewhat unfounded.

The cyber, crime and property policies all respond, although not to the degree that every loss is covered.

The company’s property coverage was inadequate to cover all of the damage done to the company’s new manufacturing system. The uninsured loss there is more than $5 million.

Sweet Life is facing a daunting task as it deals with a bruised image in the marketplace and strained relationships with its once loyal customers.

Now it also has to improve its cyber security and convince its insurers that it is a good risk going forward. When Josh Saltwood founded Sweet Life, he was one of three licensed retailers selling Kombucha. When Purple Moray struck, there were more than two dozen U.S.-based producers. The burgeoning coconut water market reflects a similar reality.

As Sweet Life tries to claw back to some semblance of success, it faces an initial market share loss of some $10 million annually, and there is no policy that can insure that.

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Risk & Insurance® partnered with FM Global to produce this scenario. Below are FM Global’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.

While one could argue whether cyber risk is still “emerging,” it’s the new reality, and should be dealt with like any other hazard. So, let’s examine this scenario using a traditional risk management approach. Although cyber is a relatively new exposure, traditional risk management concepts apply: risk identification, assessment and mitigation.

Essentially, any organization is subject to a cyber attack, and it’s not a matter of if, but when it happens. In this case, Sweet Life had just upgraded its processing and shipping system, when a data breach occurred. How the breach actually occurred is not clear, but we do know that it did cause some major damage to the industrial system control computers. Serious business interruption ensued, which had a deleterious affect on the company’s supply chain and market share.

Just how aware was Sweet Life that its IT systems were at risk? Did Anne Margate, the chief risk officer, fully understand the potential exposure? Had she and the chief information officer had any discussions about business risk impact if the systems were compromised? Today’s risk manager has to think well beyond insurance procurement. In this new digital era, the CIO becomes a new and important ally in managing risk.

Potential questions to ask:

  • To what extent are your business operations tied to computers, and how reliant are you on these systems to keep your operations running? Do you have a back up plan?
  • How secure is your network? How resilient are your email spam filters and malware protection devices?
  • Have employees received proper network security training?
  • Are measures in place to keep potential intruders from gaining access to your network—internally and externally?

Some pre-emptive actions to consider:

  • Determine what information security standard applies to your industry and base your cybersecurity framework on standardized practices.
  • Identify and classify data based on business criticality, as well as sensitivity/confidentiality of data.
  • Identify critical assets and physical/logical network access points at your facility and determine how access is controlled. Prioritize improvement activities.
  • Create and maintain a documented incident response team to respond to cyber events. The plan should be part of a holistic risk management program.
  • Test the plan. Tabletop simulation exercises can test the plan and identify restoration timeframes.

Multiple policies, various coverage: In terms of insurance coverage, cyber losses tend to involve multiple carriers. In this case, Sweet Life had three separate policies for cyber, crime and property. Unfortunately, how these policies would respond in the event of a cyber attack had never been fully vetted. As is the case with any insurance coverage, the time to learn about what is covered is an exercise best conducted before the loss actually occurs. If you have multiple carriers, be sure that you and your broker meet with them in advance to understand how the policies will respond and iron out any discrepancies.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

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Pharma Under Fire

Opioids Give Rise to Liability Epidemic

Opioids were supposed to help. Instead, their addictive power harmed many, and calls for accountability are broadening.
By: | May 1, 2018 • 8 min read

The opioid epidemic devastated families and flattened entire communities.

The Yale School of Medicine estimates that deaths are nearly doubling annually: “Between 2015 and 2016, drug overdose deaths went from 33,095 to 59,000, the largest annual jump ever recorded in the United States. That number is expected to continue unabated for the next   several years.”

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That’s roughly 160 deaths every day — and it’s a count that’s increasing daily.

In addition to deaths, the number of Americans struggling with an opioid disorder disease (the official name for opioid addiction) is staggering.

The National Institute on Drug Abuse (NIDA) estimates that 2 million people in the United States suffer from substance use disorders related to prescription opioid pain relievers, and roughly one-third of those people will “graduate” to heroin addiction.

Conversely, 80 percent of heroin addicts became addicted to opioids after being prescribed opioids.

As if the human toll wasn’t devastating enough, NIDA estimates that addiction costs reach “$78.5 billion a year, including the costs of health care, lost productivity, addiction treatment, and criminal justice involvement.”

Shep Tapasak, managing principal, Integro Insurance Brokers

With numbers like that, families are not the only ones left picking up the pieces. Municipalities, states, and the federal government are strained with heavy demand for social services and crushing expenditures related to opioid addiction.

Despite the amount of money being spent, services are inadequate and too short in duration. Wait times are so long that some people literally die waiting.

Public sector leaders saw firsthand the range and potency of the epidemic, and were among the first to seek a legal reckoning with the manufacturers of  synthetic painkillers.

Seeking redress for their financial burden, some municipalities, states and the federal government filed lawsuits against big pharmaceutical companies and manufacturers. To date, there are more than 100 lawsuits on court dockets.

States such as Ohio, West Virginia, New Jersey, Pennsylvania and Arkansas have been hit hard by the epidemic. In Arkansas alone, 72 counties, 15 cities, and the state filed suit, naming 65 defendants. In Pennsylvania, 16 counties, Philadelphia, and Commonwealth officials have filed lawsuits.

Forty one states also have banded together to subpoena information from some drug manufacturers.

Pennsylvania’s Attorney General, Josh Shapiro, recently told reporters that the banded effort seeks to “change corporate behavior, so that the industry can no longer do what I think it’s been doing, which is turning a blind eye to the effects of dumping these drugs in the communities.”

The volume of legal actions is growing, and some of the Federal cases have been bound together in what is called multidistrict litigation (MDL). These cases will be heard by a judge in Ohio. Plaintiffs hope for a settlement that will provide funding to be used to help thwart the opioid epidemic.

“From a societal perspective, this is obviously a big and impactful issue,”  said Jim George,  a managing director and global claims head with Swiss Re Corporate Solutions. “A lot of people are suffering in connection with this, and it won’t go away anytime soon.

“Insurance, especially those in liability, will be addressing this for a long time. This has been building over five or six years, and we are just now seeing the beginning stages of liability suits.” 

Basis for Lawsuits

The lawsuits filed to date are based on allegations concerning: What pharma knew or didn’t know; what it should have known; failure to monitor size and frequency of opioid orders, misrepresentation in marketing about the addictive nature of opioids; and false financial disclosures.

Opioid manufacturers, distributors and large drugstore chains together represent a $13 billion-a-year industry, meaning the stakes are high, and the pockets deep. Many have compared these lawsuits to the tobacco suits of the ’90s.

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But even that comparison may pale. As difficult as it is to quit smoking, that process is less arduous than the excruciating and often impossible-to-overcome opioid addiction.

Francis Collins, a physician-geneticist who heads the National Institutes of Health, said in a recorded session with the Washington Post: “One really needs to understand the diabolical way that this particular set of compounds rewires the brain in order to appreciate how those who become addicted really are in a circumstance where they can no more [by their own free will] get rid of the addiction than they can get free of needing to eat or drink.”

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk.” — Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

The addiction creates an absolutely compelling drive that will cause people to do things against any measure of good judgment, said Collins, but the need to do them is “overwhelming.”

Documented knowledge of that chemistry could be devastating to insureds.

“It’s about what big pharma knew — or should have known.  A key allegation is that opioids were aggressively marketed as the clear answer or miracle cure for pain,” said Shep Tapasak, managing principal, Integro Insurance Brokers.

These cases, Tapasak said, have the potential to be severe. “This type of litigation boils down to a “profits over people” strategy, which historically has resonated with juries.”

Broadening Liability

As suits progress, all sides will be waiting and watching to see what case law stems from them. In the meantime, insurance watchers are predicting that the scope of these suits will broaden to include other players in the supply chain including manufacturers, distribution services, retail pharmacies, hospitals, physician practices, clinics, clinical laboratories and marketing agencies.

Litigation is, to some extent, about who can pay. In these cases, there are several places along the distribution chain where plaintiffs will seek relief.

Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

Nancy Bewlay, XL Catlin’s global chief underwriting officer for casualty, said that insurers and their insureds need to pay close attention to this trend.

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk,” she said.

“We, as insurers who identify emerging risks, have to communicate to clients. We like to be on the forefront and, if we can, positively influence the outcome for our clients in terms of getting ahead of their risks.”

In addition to all aspects of the distribution chain, plaintiffs could launch suits against directors and officers based on allegations that they are ultimately responsible for what the company knew or should have known, or that they misrepresented their products or signed off on misleading financial statements.

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Shareholders, too, could take aim at directors and officers for loss of profits or misleading statements related to litigation.

Civil litigation could pave the way, in some specific instances, for criminal charges. Mississippi Attorney General Jim Hood, who in 2015 became the first state attorney general to file suit against a prescription drug maker, has been quoted as saying that if evidence in civil suits points to criminal behavior, he won’t hesitate to file those charges as well.

Governing, a publication for municipalities and states, quoted Hood in late 2017 as saying, “If we get into those emails, and executives are in the chain knowing what they’ve unleashed on the American public, I’m going to kick it over to a criminal lawsuit. I’ve been to too many funerals.”

Insurers and insureds can act now to get ahead of this rising wave of liability.

It may be appropriate to conduct a review of policy underwriting and pricing. XL Catlin’s Bewlay said, “We are not writing as if everyone is a pharma manufacturer. Our perception of what is happening is that everyone is being held accountable as if they are the manufacturer.

“The reality is that when insurers look at the pharma industry and each part of the supply chain, including the pharma companies, those in the chain of distribution, transportation, sales, marketing and retail, there are different considerations and different liabilities for each. This could change the underwriting and affect pricing.”

Bewlay also suggests focusing on communications between claims teams and underwriters and keeping a strong line of communication open with insureds, too.

“We are here to partner with insureds, and we talk to them and advise them about this crisis. We encourage them to talk about it with their risk managers.”

Tapasak from Integro encourages insureds to educate themselves and be a part of the solution. “The laws are evolving,” he said. “Make absolutely certain you know your respective state laws. It’s not enough to know about the crisis, you must know the trends. Be part of the solution and get as much education as possible.

“Most states have ASHRM chapters that are helping their members to stay current on both passed and pending legislation. Health care facilities and providers want to do the right thing and get educated. And at the same time, there will likely be an uptick in frivolous claims, so it’s important to defend the claims that are defensible.”

Social Service Risk

In addition to supply chain concerns, insurers and insureds are concerned that even those whose mission it is to help could be at risk.

Hailed as a lifesaver, and approved by the Food and Drug Administration (FDA), the drug Naloxone, can be administered to someone who is overdosing on opioids.  Naloxone prevents overdose by blocking opioid receptor sites and reversing the effects of the overdose.

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Some industry experts are concerned that police and emergency responders could incur liability after administering Naloxone.

But according to the U.S. Department of Justice, “From a legal standpoint, it would be extremely difficult to win a lawsuit against an officer who administers Naloxone in good faith and in the course of employment. … Such immunity applies to … other professional responders.”

Especially hard hit are foster care agencies, both by increased child placements and stretched budgets. More details in our related coverage.

While the number of suits is growing and their aim broadening, experts think that some good will come of the litigation. Settlements will fund services for the addicted and opioid risk awareness is higher than ever. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]