It’s not surprising that more distributors are providing their customers with a new kind of warranty, which is a cybersecurity warranty. Security breaches affecting data will impact businesses every two seconds and will cost businesses $265 billion by 2031. These warranties are designed to reduce the financial security risks associated with cyberattacks, and reduce the risk of liability by shifting it to the vendor. These warranties are often used together with cybersecurity insurance to fill the gaps left by insurance.
Warranty policies are a great way to transfer financial risk but they’re not a substitute for a comprehensive risk-management solution. A cybersecurity warranty can be substituted for cyberinsurance. However they should both be used in conjunction to decrease the risk.
When negotiating a warranty in an M&A transaction, it is important to know and limit the liabilities that are not covered by the warrant. For instance the regulatory offence process is typically have lengthy limitations that may exclude indemnification under a warrant.
Manufacturers should also make sure that their warranties cover how the they are intended to be used. For instance, machine learning tools which analyze walking signals could be warrantied for a variety of purposes for example, such as helping people find the appropriate shoes or diagnosing chronic pain. However, if the device is used to monitor and intercept communications or communications, a warranty exclusion can stop manufacturers from acknowledging any liability.