News & Events
Skarzynski Marick Secures Appellate Win In Cyberattack Expenses Claim
Skarzynski Marick & Black LLP recently secured an appellate victory in litigation involving “extra expense” coverage under a Lloyd’s cyber policy. Villa Financial Services, LLC v. Underwriters at Lloyd’s of London, 2025 IL App (1st) 250754-U. On November 24, 2025, the Appellate Court of Illinois, First Judicial District affirmed the lower court’s grant of judgment on the pleadings in favor of the subscribing Underwriters. Skarzynski Marick represented Underwriters before the lower court as well.
In December 2021, the insured nursing home company, Villa Financial Services, was “unable to initiate payroll processes as usual” after its third-party payroll vendor suffered a ransomware attack. As a result, Villa underpaid some nursing home employees and overpaid others. Villa then sought coverage under its cyber policy for $1.2 million in employee overpayments, claiming they qualified as covered “extra expense,” i.e., as “reasonable sums necessarily incurred … to mitigate an interruption to and continue [the insured’s] business operations ….” After Underwriters denied coverage for the overpayments, Villa filed a declaratory judgment action in the Circuit Court of Cook County, Illinois.
Underwriters successfully moved for judgment on the pleadings, arguing that the overpayments were not “necessarily incurred” because it was not “essential, indispensable, or requisite” for Villa to have paid the employees more than they were owed. As a matter of logic, Underwriters reasoned, Villa’s continuing operations would have been threatened only by underpaying employees, not by overpaying them. The Appellate Court agreed, concluding that the excess wages were not “necessary” because Villa had no obligation to pay (incur) them. As Justice Howse wrote for the panel, “While it may be true that [Villa] felt that it had no choice in that moment but to pay out extra funds in order to meet its payroll obligations, [Villa’s] apparent misfortune does not create coverage where none exists under the policy.”
In December 2021, the insured nursing home company, Villa Financial Services, was “unable to initiate payroll processes as usual” after its third-party payroll vendor suffered a ransomware attack. As a result, Villa underpaid some nursing home employees and overpaid others. Villa then sought coverage under its cyber policy for $1.2 million in employee overpayments, claiming they qualified as covered “extra expense,” i.e., as “reasonable sums necessarily incurred … to mitigate an interruption to and continue [the insured’s] business operations ….” After Underwriters denied coverage for the overpayments, Villa filed a declaratory judgment action in the Circuit Court of Cook County, Illinois.
Underwriters successfully moved for judgment on the pleadings, arguing that the overpayments were not “necessarily incurred” because it was not “essential, indispensable, or requisite” for Villa to have paid the employees more than they were owed. As a matter of logic, Underwriters reasoned, Villa’s continuing operations would have been threatened only by underpaying employees, not by overpaying them. The Appellate Court agreed, concluding that the excess wages were not “necessary” because Villa had no obligation to pay (incur) them. As Justice Howse wrote for the panel, “While it may be true that [Villa] felt that it had no choice in that moment but to pay out extra funds in order to meet its payroll obligations, [Villa’s] apparent misfortune does not create coverage where none exists under the policy.”