Insurance Curator Estimated reading time: 18 minutes | Updated February 2026
Supply-chain cyber attacks—also called third-party or vendor‐driven breaches—have surged 742 % in the United States since 2020 (Source: BlueVoyant 2024). From the SolarWinds compromise that infiltrated multiple federal agencies to the 2023 MOVEit exploitation that hit more than 1,000 U.S. organizations, attackers have discovered an easy truth: if they can’t break your network, they’ll break someone you trust.
Yet when American companies file cyber insurance claims for these incidents, they often discover painful exclusions, sub-limits, or waiting periods hiding in the fine print. This ultimate guide demystifies how cybersecurity insurance responds to supply-chain events, uncovers the most common coverage pitfalls, and shows you—step by step—how to lock in the right protection before your next renewal.
Why Supply-Chain Attacks Are Exploding in the United States
What Counts as a Supply-Chain Attack?
A supply-chain attack occurs when threat actors compromise your data, systems, or operations by exploiting a third-party vendor or service provider instead of attacking you directly. Common vectors include:
- Managed service providers (MSPs)
- Cloud/SaaS platforms
- Software updates (e.g., malicious code in signed packages)
- Hardware or firmware manipulation
Eye-Opening Numbers
| Year | Average Cost of U.S. Supply-Chain Data Breach* | Percentage of All Reported Breaches |
|---|---|---|
| 2021 | $4.46 million | 17 % |
| 2022 | $4.82 million | 23 % |
| 2023 | $4.91 million | 28 % |
*IBM “Cost of a Data Breach Report 2023”—U.S. dataset
Notably, the MOVEit incident alone is expected to generate more than $9 billion in insured and uninsured losses (Source: NetDiligence 2024).
How Standard Cyber Policies Respond to Supply-Chain Events
Most American cyber insurers offer first-party and third-party coverage. Whether supply-chain losses are covered depends on precise wording—especially around “dependent business interruption” (DBI) and “system failure” triggers.
| Coverage Part | Typical Trigger | Does It Apply to Supply-Chain? |
|---|---|---|
| First-Party Business Interruption | Security breach of your network | Sometimes (if policy extends to vendor systems) |
| Contingent/Dependent Business Interruption (DBI) | Security breach of a “dependent system” | Usually—but sub-limited |
| System Failure | Unintentional outage, not necessarily malicious | Often excluded without endorsement |
| Data Restoration | Costs to rebuild lost data | Frequently covered if breach at vendor involves your data |
| Third-Party Liability | Suits or regulator demands | Covered, but defense may erode limit |
Want a deeper dive into every coverage part? Read What Does Cybersecurity Insurance Cover? Comprehensive Breakdown by Coverage Part.
Five Coverage Pitfalls That Blindside U.S. Policyholders
1. Contingent Business Interruption Sub-Limits and Waiting Periods
Many carriers cap DBI claims at 50 % or less of the overall business-interruption limit. Standard waiting periods range from 8–12 hours, but some jump to 24. During Kaseya’s 2021 ransomware event, several Florida MSP clients discovered their $1 million BI limit translated into only $250k for DBI after a 12-hour deductible.
Fix it
- Ask for equal limits for direct and contingent BI.
- Negotiate a waiting period no longer than 8 hours.
2. “Acts, Errors, or Omissions by a Third Party” Exclusion
Some policies exclude losses “arising out of acts, errors, or omissions by a third-party service provider.” The clause is meant for professional-services liability but can also cut off cyber coverage.
Fix it
- Strike or carve back the exclusion to clarify that it does not apply to covered cyber events.
3. Ambiguous “System Failure” Wording
If the vendor outage is accidental (not a cyber attack), insurers may deny claims unless you purchased a System Failure endorsement. During the 2022 AWS us-east-1 outage, multiple retailers in New York City learned this the hard way.
Fix it
- Buy the endorsement or choose a carrier that automatically includes non-malicious outages.
4. Geographical Limitations on Dependent Systems
A policy might restrict coverage to vendors “domiciled in the United States.” That would exclude, for example, an Indian software development contractor critical to many Austin-based tech startups.
Fix it
- Ensure the definition of dependent system is location-agnostic.
5. Aggregate Sublimits Hidden in the Endorsements
Several top carriers bundle malware, cyber extortion, and supply-chain BI into a single $250k aggregate—even if you purchased $2 million total cyber limits.
Fix it
- Review endorsements line-by-line or see our guide: 12 Common Exclusions Hidden in Cybersecurity Insurance Policies.
Real-World Claim Scenarios
Case 1 – Coverage Works: Manufacturing Plant in Ohio
Situation
SolarWinds‐related malware halted an ERP system, causing $600k in lost income.
Outcome
Chubb paid full $1 million DBI limit because policy defined “dependent system” broadly and had no separate sublimit.
Case 2 – Coverage Denied: Healthcare Group in California
Situation
Vendor hosting EHR platform suffered accidental system misconfiguration. Outage lasted 20 hours, costing $1.2 million.
Outcome
Claim denied—no System Failure endorsement. Hospital self-insured losses.
Case 3 – Partial Pay: Retail Chain in Texas
Situation
Ransomware in POS software vendor. Business interruption of 10 days.
Outcome
Travelers paid $500k but enforced 12-hour waiting period and applied $250k DBI sublimit, leaving $400k uncovered.
Comparing Leading U.S. Cyber Insurers on Supply-Chain Coverage
| Carrier | DBI Sublimit (Typical) | System Failure Coverage | Waiting Period | Ballpark Annual Premium* |
|---|---|---|---|---|
| Chubb | Match primary BI limit | Included | 8 hrs | $14,500 for $1M limit |
| AIG (CyberEdge) | 50 % of BI | Optional endorsement | 12 hrs | $16,200 |
| Travelers (CyberRisk) | $250k aggregate | Optional | 12 hrs | $13,800 |
| Coalition | Full limit | Included | 1 hr | $12,000 |
| Beazley (Beazley Breach Response) | $500k | Included | 8 hrs | $15,000 |
*Quoted December 2025 for a mid-market professional-services firm with $100 M revenues in New York City. Actual rates vary by industry, controls, and claims history.
For cross-carrier comparisons on other coverage areas, check out Comparing Cybersecurity Insurance Coverage Across Top Carriers: Who Offers What.
Risk-Transfer Costs Across Key U.S. Tech Hubs (2024-2025)
| Location | Typical Premium per $1 M Limit | Average Retention | Notable State Regulations |
|---|---|---|---|
| New York City, NY | $14k–$18k | $25k–$100k | NYDFS Part 500 |
| Austin, TX | $10k–$14k | $15k–$75k | Texas Data Breach Law SB 820 |
| San Francisco, CA | $17k–$22k | $50k–$150k | CCPA & CPRA |
Premiums rose about 15 % YoY nationwide; however, companies that can show multi-factor authentication (MFA) and a strong Software Bill of Materials (SBOM) for their vendors receive credits up to 7 %.
Best Practices to Close Supply-Chain Coverage Gaps
-
Map Your Digital Supply Chain
Maintain an SBOM and vendor criticality matrix. -
Demand Contractual Indemnity
Require vendors to carry cyber limits at least equal to yours. -
Purchase Adequate DBI Limits
Align with worst-case downtime scenario. For e-commerce, 72-hour outage may equal an entire quarter’s profit. -
Add System Failure Endorsements
Protect against accidental outages and cloud downtime. -
Negotiate Broader “Dependent System” Definitions
Include cloud, SaaS, PaaS, payment processors, logistics providers. -
Secure Ransomware Sublimit Increases
Refer to Ransomware Coverage Limits in Cybersecurity Insurance: How to Get Adequate Protection. -
Implement Vendor-Risk Controls
Carriers like Coalition and Beazley offer premium credits for continuous vendor scanning. -
Monitor Policy Changes Annually
Underwriting appetites shift quickly—what’s covered today may be excluded at renewal.
How to Negotiate Endorsements and Higher Limits
Step 1: Gather Loss Scenarios
Quantify worst-case downtime, forensic, and legal costs.
Step 2: Approach Carriers with Data
Showcase tabletop exercises and vendor patch-management cadence.
Step 3: Request Endorsements
- Contingent Business Interruption—Full Limits
- System Failure—$1 million+
- Breach Response Costs—No Sublimit
Step 4: Push for Co-Insurance Reductions
Some carriers impose 10–20 % co-insurance on DBI. Negotiate down to 0 %.
For a broader discussion of add-ons, see Cybersecurity Insurance Endorsements That Close Costly Coverage Gaps.
Checklist: Questions to Ask Your Broker Before Binding
- What is the exact definition of “computer system” and “dependent system”?
- Are system-failure losses limited to malicious events?
- Does the DBI sublimit match the main business-interruption limit?
- How long is the waiting period for DBI?
- Is coverage worldwide, or limited to U.S.-domiciled vendors?
- Does the ransomware sublimit aggregate with DBI?
- Will legal defense expenses erode policy limits?
- Is there a retroactive date or claims-made trap (see Claims-Made Triggers in Cybersecurity Insurance: Timing Your Coverage Right)?
Regulatory and Contractual Considerations
- NYDFS Cybersecurity Regulation (23 NYCRR 500) mandates that covered New York entities implement third-party service provider security policies. Insurers increasingly tie premium credits to compliance evidence.
- FTC Safeguards Rule (updated 2023) now applies to non-bank financial institutions, raising the bar on vendor oversight.
- CCPA/CPRA in California introduces private right of action for data breaches—amplifying third-party liability.
- Federal Contract Mandates under CMMC 2.0 require defense contractors to validate supply-chain security.
Failure to meet these standards can trigger policy exclusions for “knowing violation of law.”
Putting It All Together: Action Plan for U.S. Businesses in 2024
- Conduct a supply-chain cyber risk assessment focused on your top 10 vendors.
- Implement MFA, EDR, and zero-trust controls—several carriers now decline applicants without them.
- Build an incident response retainer that explicitly includes third-party forensics.
- Secure equal or higher cyber limits compared to your critical vendors.
- Negotiate for full-limit DBI and system-failure coverage at renewal.
- Document and test a vendor outage playbook semi-annually.
- Revisit policies every 12 months; keep an eye on sublimits creeping into endorsements.
Frequently Asked Questions
Q1: Do cyber policies cover software supply-chain attacks like SolarWinds by default?
A1: Only if the policy extends business-interruption and breach-response costs to “dependent systems” without restrictive sublimits or exclusions.
Q2: How much extra premium should I expect for full-limit DBI coverage?
A2: In New York, upgrading from a $250k sublimit to full $1 million typically costs 5–8 % additional premium—about $750–$1,200 on a $15k base.
Q3: Will a system-failure endorsement raise my deductible?
A3: Some carriers increase the retention by $5k–$10k, but many simply charge an extra premium.
Q4: Can I buy stand-alone supply-chain cyber coverage?
A4: Yes. Markets like Parametrix offer parametric cloud-outage policies; premiums start at $0.15 per $1 of limit.
Q5: How does cyber insurance interact with vendor indemnities?
A5: Your policy will pay first, then seek subrogation from the vendor’s insurance, but only if your contract preserves indemnity rights.
Conclusion
Supply-chain cyber attacks are no longer fringe events—they are the fastest-growing source of insured losses in the United States. Yet coverage pitfalls abound. By understanding sublimits, waiting periods, exclusions, and endorsements, U.S. businesses can transform their cyber policies from little more than marketing brochures into true balance-sheet protection.
Use this guide as your roadmap, engage an experienced broker, and reference our linked deep-dive articles to ensure your next renewal fully shields you from the next vendor-driven catastrophe.
Citations
- IBM. “Cost of a Data Breach Report 2023.” https://www.ibm.com/reports/data-breach.
- BlueVoyant. “2024 State of Supply Chain Defense.” https://www.bluevoyant.com/resources.
- NetDiligence. “2024 Cyber Claims Study.” https://netdiligence.com/cyber-claims-study-2024/.