How MSPs Can Turn Legal Risk Into Competitive Advantage Amid Rising Cybersecurity Litigation

Managed Service Providers (MSPs) are increasingly being pulled deeper into the legal fallout of cyberattacks, even in cases where they aren’t actually delivering security services. For example, a recent $7.25 million class-action settlement emphasizes the shift: liability is expanding, documentation expectations are rising, and cyber insurers are denying more claims. 

MSPs aren’t just IT partners—they’re business enablers. So, although technically outside their purview, closing any holes in vendor-client communication and cybersecurity documentation can help MSPs mitigate any heightened liability and financial risk they could face due to shifting expectations. Beyond the risk management benefit for MSPs, this collaboration with customers on documentation is valuable to their own security and compliance efforts.

Here are a few tips MSPs can use to protect themselves against possible legal action while also improving customer experience.

Reassure Clients by Staying on the Same Page

The growing demand for cyber insurance as organizations seek protection to operate in the digital age means insurers request strict documentation before agreeing to cover these organizations. When cybersecurity falls into the hands of an MSP, the MSP is burdened with presenting a high percentage of this documentation.

Without robust documentation of real-time threat detection and mitigation, MSPs’ clients risk lawsuits and denied insurance claims. MSPs must prioritize thorough documentation of the security measures they implement to protect themselves from liability and meet cyber insurance expectations, while also aiding their customers in obtaining insurance. Proper documentation is critical for MSPs, not because they are responsible for cybersecurity outcomes, but because inadequate records can make them a legal target after a breach.

There are three crucial steps MSPs should take to protect themselves against breach litigation: 

• Recognize the risks their systems could pose to both them and their clients 
• Convey these risks to clients and document the conversations 
• Take measures to mitigate these risks with transparency back to clients along the way

What Insurers Are Looking For

TechTarget says many insurance underwriting requirements ask organizations to demonstrate several key security measures. These include multi-factor authentication for all work apps, endpoint security protection, and email security against phishing, spam, and ransomware attacks. Additionally, organizations must have vulnerability management programs, employee cyber risk training, clear backup and recovery systems and regular testing to ensure operations continue after a breach.

Insurance companies also look for organizations to align their infrastructure and cybersecurity practices with some of the popular regulatory compliance frameworks that emphasize ongoing risk mitigation activities, such as SOC 2 Type 2, the NIST Cybersecurity Framework, ISO 27001/27002, and Center for Internet Security benchmarks. 

Liability Safeguards Start with Cybersecurity Best Practices

The primary role of an MSP should remain clear: to perform the services for clients agreed upon in their contractual agreements. Despite technically being out of their purview, MSPs are increasingly being affected by the legal fallout of cyberattacks because of holes in documentation. The risks associated with operating a modern business now mean that MSPs should take additional measures to ensure their clients’ and their own safety. 

Even if the MSP isn’t providing security services as part of the agreement with the client, this is not to suggest that MSPs shouldn’t care about their clients’ ability to achieve coverage. Rather, if the focus is set on attaining proper threat detection and mitigation—which is to say, all the best practices involved in modern cybersecurity — it should be relatively easy to present the documentation needed for insurance. This is because the proper infrastructure setup will be there, the connectivity will be monitored, and the documentation should be easily presentable to insurers when the client asks. 

Real-time threat detection and response and forensic-grade documentation depend on the right technology tools to achieve these goals. Through partnership integrations with companies like CrowdStrike, MSPs can implement the kind of real-time threat visibility and forensic-grade documentation that are quickly becoming essential in breach litigation and insurance disputes. 

Preparing for the Future Threat Landscape

The relationship between MSPs and their clients doesn’t need to sour over fears of legal action if a breach should occur. Transparency can be an MSP’s secret weapon to protect itself against litigation; customer experience will also benefit from this approach. There are even third parties that help MSPs navigate evolving cyber insurance policies and compliance frameworks, providing automated reporting, evidence logs, and policy alignment to help them pass audits and avoid denied claims. Selecting the right vendor will depend upon your organization’s unique needs. 

In the end, MSPs must back up everything they do with evidence. Having a paper trail will help safeguard them against getting served. The rising risk of cyber breaches and litigation making the news may not be all bad, either. According to this article in CRN, it may even be a great opportunity to spark a conversation with clients about their cybersecurity risk posture, opening up new services to help fully prepare them for the future.