In late 2013 Cottage Health System, the operator of a network of hospitals in Southern California, discovered that hackers had stolen 32,500 patient records. Cottage was sued for $4.1 million, which was paid by the insurer, Columbia Casualty Company, as provided by the policy.

Now, Columbia is suing Cottage for reimbursement, alleging that Cottage and its third-party vendor, INSYN Computer Solution, Inc., stored medical records on a system that was fully accessible to the Internet but failed to install encryption or take other security measures to protect patient information as required by the policy.

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