Risk Scenario

Midnight Blitz

On Cyber Monday, skilled hackers diminish an online retailer's credibility in mere minutes.
By: | November 13, 2014 • 8 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.

The Citadel

The October 2015 cover of the trade publication Retailer’s World featured a picture of Paul Vitez, general counsel for cloud host Va-Voom!, which rewrote the book on online shopping, making a billionaire of its founder, Teddy Houck.


In glowing prose, the author of the Retailer’s World cover story related Vitez’ impressive academic record at Haverford College, his background in finance and his role in earning for Va-Voom! the nickname of “The Citadel” for its innovative, committed approach to cyber security.

Employing the “prison, not a castle” approach to cyber security, Vitez and Va-Voom! created “honey- pots” within the Va-Voom! system, decoys which looked like they contained important data but were not actually part of the internal network.

Moving much more swiftly than its competitors, Va-Voom! also spent millions to implement chip and pin credit card technology on its credit cards, a much more secure way to store sensitive financial and personal information than the traditional magnetic strip.

Again with an eye toward short-term investment in operations and a goal of long-term success, Vitez was given carte blanche by Teddy Houck and the Va-Voom! board of directors to spend top dollar for information technology talent that had honed their skills in the high-stakes environments of the CIA and the Department of Defense.



From an information technology policy perspective, Va-Voom! was a demanding place to work. Under Vitez’ direction, the use of data encryption was heavily enforced. It also had a strict company policy barring employees from connecting personal devices to any computer equipment owned by Va-Voom! or to its network.

In 2014 and 2015, one by one, major retailers — even banking institutions — were hit by cyber attacks that undermined the public’s faith in those companies, doing serious mid- to long-term damage to their reputations. Retailers that learned only too well the degree to which they were vulnerable to attack found in Va-Voom! a business partner they felt they could trust.

Rather than being dampened by cyber fears, the trend of cyber attacks in 2014 and early 2015 actually increased the number of retailers that wanted to do business with Va-Voom!

The company’s insurance program was something of an anomaly, considering its position in the industry. Starting with a substantial retention, Va-Voom! carried property and professional liability coverage for its employees.

The company considered but never purchased coverage that would substantially indemnify the hundreds of retailers and other service providers that used its services, were Va-Voom! to be the victim of a cyber-security incident. It carried third-party liability insurance, but not as much as you would think a company of its size would carry.

“Really?” Vitez memorably said during a meeting with Steve Francis, the company’s chief risk officer and company CFO Maribel Kelly, when the subject of cyber security indemnification was broached by Va-Voom!’s broker, himself no slouch when it came to these matters.

With an eye to the merciless whims of stock market investors, Vitez and Kelly sided against Steve Francis when he argued that the cost of the premium, though it would put a slight dent in the company’s bottom line on a quarterly basis, was well worth the expense.

“Nobody manages this risk better than we do,” Vitez said, crossing his arms across his chest.

“We can and do own this risk,” he said.

Steve Francis looked at Vitez across the table but didn’t say what he was thinking. What he was thinking was, “You just bit off way more than you can chew, Mr. Haverford.”

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The Blitz

Just before midnight on Nov. 30, 2015, the Monday after Thanksgiving, known in retailing as Cyber Monday, a highly sophisticated and well-coordinated cyber-attack began, erasing Va-Voom!’s considerable credibility in a matter of minutes.


Here’s how it unfolded.

At five minutes to midnight, the websites of 10 of the largest retailers that sold on the Va-Voom! site went down. The retailers were so in the dark about what had happened to them that it took hours to put together that the source of the attack was coming from within Va-Voom!’s vaunted information technology system.

Precisely at midnight, unidentified hackers used the stolen e-mail addresses of the 10 retailers’ customers to send Trojan Horses to the personal computers of millions of online shoppers.

The customers didn’t need to click on the e-mails or download attachments to empower the Trojan Horses. After a mere half hour in their inboxes, the e-mails activated a cyber-locking mechanism that shut the users out of their own computers. The only visible content on their screen was the logo of the retailer whose customer information was stolen.

Angry consumers, shut out of their personal computers, pick up their handheld devices to vent their frustration in instant messages and Tweets aimed at the retailers whose logos were frozen on their now-useless computer screens.

Several of the affected companies went public within hours with their conviction that the Trojan Horses that caused so much havoc emanated from the Va-Voom! network.

“Are you seeing this?” said David Cohen, the equally miffed general counsel for one of the retailers, on a phone call with his law school buddy Paul Vitez, as they tried to sort out the hell that had broken loose.

“Yes I’m seeing it,” said Vitez.

Vitez, normally a man of action, but temporarily flummoxed, became as passive as any teenager with a handheld device in their hand as he sat, scrolling through the Tweets and Facebook posts that were savaging the retailers and Va-Voom!

“What are you doing?” Cohen said impatiently when Vitez fell silent.

“Are you playing with your iPhone? We have a serious situation here, Paul!” Cohen said.

“I’m not playing with my iPhone!” Vitez shouted back before putting down his mobile device and trying to regain control of his emotions.

“I know we have a problem David, I know we do,” Vitez said.

But all Vitez could do beyond that was run his hands through his hair, temporarily at a loss as to exactly what to do next.

On the afternoon of December 1, the New York Times published an online story, featuring quotes attributed to Wall Street analysts from the technology and retail sectors, estimating that damage to home computers and lost online retail sales from the coordinated and ongoing cyber attack could potentially exceed $1 billion.

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Black Monday and Beyond

In the aftermath of what history and newspaper editors and writers would record as “Black Monday,” Vitez and the rest of the Va-Voom! team tried to take stock of their losses and rally themselves into a recovery. They had a very hard and very expensive road ahead of them.


Paul Vitez had used the millions accorded to him to create Va-Voom’s “prison, not a castle” approach to cyber defense and he had employed that money in an admirable and innovative fashion.

But it was in a meeting with chief risk officer Steve Francis, CFO Marabel Kelly and Va-Voom!’s technology and general liability broker Brandon Fikes that Paul Vitez came to a better, albeit painful understanding about the best allocation of capital in the quest to manage risk.

The most immediate pain that Va-Voom! was feeling were notices from five attorneys general that investigations into the Black Monday breach were underway.

‘Well, the good news is that your regulatory defense is covered, as is your first party business interruption,” Fikes said.

“Great,” Vitez said. “What else?”

Steve Francis glanced at Vitez out of one corner of his eye. He felt the pain of the losses to the company as badly as anyone, but he couldn’t help but take a bit of perverse pleasure in the discomfort of Vitez, whose arrogance, in Francis’ estimation, was going to have significant consequences, consequences that could be measured in millions of dollars.

“The rest is somewhat of a mixed bag, unfortunately,” Fikes said.

“Go on,” said Vitez who shot Francis a quick sharp look, causing Francis to turn away quickly, lest his inner thoughts become outwardly visible.

“You had some third party liability coverage, but I don’t think it’s going to be enough to cover the losses of your business partners, not to mention the shoppers whose personal computers were damaged by this event,” Fikes said.

“How much …” Vitez managed to get out before Steve Francis stepped in.

“We could have multiples of millions in exposure here, Paul,” Francis said.

Vitez shot Francis another look but Francis diplomatically kept his mouth shut.

“I don’t think we’re ever going to get to the bottom of where this attack came from and who launched it,” said the CFO, Marabel Kelly.

“What’s your advice, Brandon, about spending money on forensics?” she asked.

“I think you spend it for a couple of reasons,” Fikes said.

“One, the cost is covered by insurance. But that’s not the best reason. The best reason is that you can use forensics to learn from the event and hopefully prevent anything else as bad as this going forward,” he said.

“All right,” Kelly said. “What else?”

“There’s reputation,” Steve Francis offered.

“Some say you can put a price on it, some say you can’t,” said Fikes.

“But one thing is for sure,” he said. “You had no coverage in place for that in any event.”

There was a pause, as the significance of that statement sunk in. In the extended, painfully awkward silence, Marabel Kelly shuffled the paperwork in front of her and shifted in her seat, visibly perturbed.

Within two weeks of that difficult conversation, the pain intensified for Paul Vitez and Va-Voom! Class action lawsuits were filed on behalf of the millions of home-computer owners who alleged pain and suffering in connection with the hassle of credit card replacement and property loss from their now-useless computers.

The 10 retailers affected, now known colloquially and to their ongoing irritation as the Black Monday Ten, also filed suit.

With Va-Voom!’s uninsured losses building from the millions to the tens of millions, Paul Vitez, once a magazine cover boy, resigned his position.

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Risk & Insurance® partnered with XL Group to produce this scenario. Below are XL Group’s recommendations on how to prevent the losses presented in the scenario. These “Lessons Learned” are not the editorial opinion of Risk & Insurance®.

1. Have a crisis management response plan in place – The consequences of a cyber-attack are too expensive and too damaging for companies not to have a clear idea how they are going to respond in the event their services, or the services of their business partners are interrupted.

2. Understand your risk profile – Different companies have different cyber-risk profiles depending on their industry. Understanding your cyber-risk profile and working in conjunction with an agent and underwriter to map out the best coverage is a crucial step in avoiding being underinsured or paying too much for coverage you don’t need.

3. You are next – The realm of cyber-security and cyber-attacks is one area where an “it can’t happen here” mentality could be catastrophic. The chilling fact of the matter is that the most well-financed companies with the most sophisticated cyber defenses are vulnerable.

4. Get help – Whether it be through your insurance coverage or some other funding mechanism, find and connect with the consultants you need to help you understand the threat and how you can protect yourself. This risk environment is changing day by day and no one can afford to be content with the status quo.

5. Enforce your IT policies – Having sensible IT policies in place to minimize the potential for an attack is not enough. Companies must be proactive in seeing that employees take seriously company rules and standards on data encryption, and the use of personal devices in the workplace or in connection with company networks.

Additional Partner Resources

XL Group Cyber Product Sheet

John Coletti, Underwriting Manager of Cyber Liability, discusses cyber coverage options.

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

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Marine

Crewless Ships Raise Questions

Is a remote operator legally a master? New technology confounds old terms.
By: | March 5, 2018 • 6 min read

For many developers, the accelerating development of remote-controlled and autonomous ships represents what could be the dawn of a new era. For underwriters and brokers, however, such vessels could represent the end of thousands of years of maritime law and risk management.

Rod Johnson, director of marine risk management, RSA Global Risk

While crewless vessels have yet to breach commercial service, there are active testing programs. Most brokers and underwriters expect small-scale commercial operations to be feasible in a few years, but that outlook only considers technical feasibility. How such operations will be insured remains unclear.

“I have been giving this a great deal of thought, this sits on my desk every day,” said Rod Johnson, director of marine risk management, RSA Global Risk, a major UK underwriter. Johnson sits on the loss-prevention committee of the International Union of Maritime Insurers.

“The agreed uncertainty that underpins marine insurance is falling away, but we are pretending that it isn’t. The contractual framework is being made less relevant all the time.”

Defining Autonomous Vessels

Two types of crewless vessels are being contemplated. First up is a drone with no one on board but actively controlled by a human at a remote command post on land or even on another vessel.

While some debate whether the controllers of drone aircrafts are pilots or operators, the very real question yet to be addressed is if a vessel controller is legally a “master” under maritime law.


The other type of crewless vessel would be completely autonomous, with the onboard systems making decisions about navigation, weather and operations.

Advocates tout the benefits of larger cargo capacity without crew spaces, including radically different hull designs without decks people can walk on. Doubters note a crew can fix things at sea while a ship cannot.

Rolls-Royce is one of the major proponents and designers. The company tested a remote-controlled tug in Copenhagen in June 2017.

“We think the initial early adopters will be vessels operating on fixed routes within coastal waters under the jurisdiction of flag states,” the company said.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.”

Once autonomous ships are a reality, “the entire current legal framework for maritime law and insurance is done,” said Johnson. “The master has not been replaced; he is just gone. Commodity ships (bulk carriers) would be most amenable to that technology. I’m not overly bothered by fully automated ships, but I am extremely bothered by heavily automated ones.”

He cited two risks specifically: hacking and fire.

“We expect to see the first autonomous vessel in commercial operation by the end of the decade. Further out, around 2025, we expect autonomous vessels to operate further from shore — perhaps coastal cargo ships. For ocean-going vessels to be autonomous, it will require a change in international regulations, so this will take longer.” — Rolls-Royce Holdings study

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty, asked an even more existential question: “From an insurance standpoint, are we even still talking about a vessel as it is under law? Starting with the legal framework, the duty of a flag state is ‘manning of ships.’ What about the duty to render assistance? There cannot be insurance coverage of an illegal contract.”

Several sources noted that the technological development of crewless ships, while impressive, seems to be a solution in search of a problem. There is no known need in the market; no shippers, operators, owners or mariners advocate that crewless ships will solve their problems.

Kinsey takes umbrage at the suggestion that promotional material on crewless vessels cherry picks his company’s data, which found 75 percent to 90 percent of marine losses are caused by human error.


“Removing the humans from the vessels does not eliminate the human error. It just moves the human error from the helm to the coder. The reports on development by the companies with a vested interest [in crewless vessels] tend to read a lot like advertisements. The pressure for this is not coming from the end users.”

To be sure, Kinsey is a proponent of automation and technology when applied prudently, believing automation can make strides in areas of the supply chains. Much of the talk about automation is trying to bury the serious shortage of qualified crews. It also overshadows the very real potential for blockchain technology to overhaul the backend of marine insurance.

As a marine surveyor, Kinsey said he can go down to the wharf, inspect cranes, vessels and securements, and supervise loading and unloading — but he can’t inspect computer code or cyber security.

New Times, New Risks

In all fairness, insurance language has changed since the 17th century, especially as technology races ahead in the 21st.

“If you read any hull form, it’s practically Shakespearean,” said Stephen J. Harris, senior vice president of marine protection UK, Marsh. “The language is no longer fit for purpose. Our concern specifically to this topic is that the antiquated language talks about crew being on board. If they are not on board, do they still legally count as crew?”

Harris further questioned, “Under hull insurance, and provided that the ship owner has acted diligently, cover is extended to negligence of the master or crew. Does that still apply if the captain is not on board but sitting at a desk in an office?”

Andrew Kinsey, senior marine risk consultant, Allianz Global Corporate & Specialty

Several sources noted that a few international organizations, notably the Comite Maritime International and the International Maritime Organization, “have been very active in asking the legal profession around the world about their thoughts. The interpretations vary greatly. The legal complications of crewless vessels are actually more complicated than the technology.”

For example, if the operational, insurance and regulatory entities in two countries agree on the voyage of a crewless vessel across the ocean, a mishap or storm could drive the vessel into port or on shore of a third country that does not recognize those agreements.

“What worries insurers is legal uncertainty,” said Harris.

“If an operator did everything fine but a system went down, then most likely the designer would be responsible. But even if a designer explicitly accepted responsibility, what matters would be the flag state’s law in international waters and the local state’s law in territorial waters.


“We see the way ahead for this technology as local and short-sea operations. The law has to catch up with the technology, and it is showing no signs of doing so.”

Thomas M. Boudreau, head of specialty insurance, The Hartford, suggested that remote ferry operations could be the most appropriate use: “They travel fixed routes, all within one country’s waters.”

There could also be environmental and operational benefits from using battery power rather than conventional fuels.

“In terms of underwriting, the burden would shift to the manufacturer and designer of the operating systems,” Boudreau added.

It may just be, he suggested, that crewless ships are merely replacing old risks with new ones. Crews can deal with small repairs, fires or leaks at sea, but small conditions such as those can go unchecked and endanger the whole ship and cargo.

“The cyber risk is also concerning. The vessel may be safe from physical piracy, but what about hacking?” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]