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Department of Justice Opinion Legalizing Non-Sports Intrastate Online Gambling Presents Emerging Market for Cyber Coverage

07.25.12
James E. Prendergast and Helena Lazares

In December 2011, the Department of Justice (DOJ) issued a 13-page memorandum opinion that effectively legalized intrastate online gambling, which could result in a vast new market for cyber liability insurance.  Written by Assistant Attorney General Virginia Seitz, the opinion changed the DOJ’s long-held position on Internet gambling which, pursuant to the federal Wire Act of 1961 (Wire Act), prohibited it in all forms. The new interpretation of the Wire Act was prompted over proposals by Illinois and New York to use the Internet and out-of-state transaction processors to sell lottery tickets to in-state adults. The Wire Act now only prohibits the transmission of communications related to bets or wagers on sporting events or contests, allowing all other electronic transactions that do not violate the Unlawful Internet Gambling Enforcement Act (UIGEA) or relevant state laws.

In the opinion, the DOJ examined whether the Illinois and New York proposals presented a conflict between the Wire Act and the UIGEA, which permits intermediate out-of-state routing of electronic data associated with lawful lottery transactions that otherwise occur in-state. The DOJ concluded that the Wire Act was limited only to sports betting, and therefore not in conflict with the UIGEA.

While coverage for casinos has primarily focused on standard exposures such as property, general liability and liquor liability, this recent DOJ opinion could result in a jackpot of new submissions for carriers offering cyber coverage. Currently, the annual amount of online betting has reached nearly $70 billion outside of the United States. Pursuant to the new interpretation of the Wire Act, the amount of online betting in the United States may quickly catch up to international averages. In order to protect themselves in this new environment, with sensitive personal data and billions of dollars at stake in online gaming, risk managers whose organizations decide to begin dealing in online gambling ought to obtain or strengthen their cyber coverage.


NOTE: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.