Cyber incidents aren’t always caused by hackers or malicious attacks. Sometimes, a simple technical glitch, software error, or power outage can bring operations to a standstill — causing just as much disruption and financial loss as a cyberattack would.

That’s where system failure and dependent system failure coverage come in. These important components of a business cyber insurance policy help keep your company financially protected when the unexpected happens.

What Is System Failure Coverage?

System failure coverage helps your business recover financially if a non-malicious event causes your computer systems to go down and interrupts normal operations.

In other words, it extends protection beyond traditional cyberattack scenarios. Instead of covering just ransomware, malware, or data breaches, system failure coverage applies to incidents like:

• Software or application glitches

• Failed system updates or patches

• Hardware malfunctions

• Power surges or network outages

• Human error that unintentionally causes downtime

When these issues prevent your business from operating — for example, halting sales, production, or customer service — system failure coverage can help replace lost income and cover extra expenses to restore operations.

What Is Dependent System Failure Coverage?

Dependent system failure coverage is an important companion to system failure coverage. It extends that same protection to third-party providers your business relies on — such as cloud platforms, data centers, or software vendors.

If one of those providers experiences a non-malicious outage (for example, a server crash or failed software update) that disrupts your ability to operate, dependent system failure coverage can help reimburse you for the income loss and related expenses.

This type of coverage acknowledges how interconnected modern businesses are — and that downtime at a vendor’s system can hurt your business just as much as downtime in your own.

Examples of How These Coverages Work

• Example 1: Internal System Crash
  A small accounting firm’s internal server fails after a system update, knocking out access to client files for three days. With system failure coverage, the firm can recover lost income and the costs of hiring IT professionals to restore operations.

• Example 2: Vendor Outage
  An online retailer uses a third-party e-commerce platform. When that platform suffers a widespread system outage due to a failed software patch, the retailer loses several days of sales. Dependent system failure coverage helps make up for that lost revenue.

• Example 3: Cloud Storage Downtime
  A marketing agency relies on a cloud storage provider for client projects. A hardware malfunction at the provider’s data center brings systems offline for 48 hours. Dependent system failure coverage helps the agency recover lost income and pay for overtime once systems are restored.

Why These Coverages Are Important

System and dependent system failure coverage close critical gaps that traditional cyber insurance policies might overlook. Not every disruption comes from a hacker — but downtime is downtime, regardless of the cause.

Here’s why businesses should take them seriously:

• Protects Against Everyday Risks: Technical errors and system crashes happen more often than cyberattacks. These coverages ensure you’re protected from those routine, non-malicious disruptions.

• Keeps Revenue Flowing: Even short periods of downtime can hurt cash flow, especially for small and mid-sized businesses.

• Covers Third-Party Dependencies: If your vendors or technology partners go down, your operations — and your revenue — can suffer. This coverage helps you stay financially stable when that happens.

• Complements Broader Cyber Protection: Together with breach response and business interruption coverage, system failure coverage creates a more complete safety net for modern businesses.

The Bottom Line

System and dependent system failure coverage help businesses stay resilient in the face of downtime — whether caused by a cyberattack, technical error, or third-party system glitch. They ensure that your company can recover quickly and stay financially protected when critical systems fail.

At Redwood Insurance Solutions, we help businesses understand every layer of cyber protection — so you know exactly how your policy responds when operations are interrupted, no matter the cause.