When Amazon Broke the Internet: Legal Implications for Businesses. A Wake-Up Call for Cloud Dependency

Turning a Technical Event Into a Legal Strategy – Contact Our New Jersey Business and Insurance Lawyers at Herold Law, P.A.

Posted on November 24, 2025

On October 20, 2025, a major Amazon Web Services (AWS) outage disrupted internet access for millions across the United States, temporarily breaking some of the world’s most widely used platforms — including Slack, Venmo, Robinhood, Reddit, and Prime Video. What began as a routine DNS update quickly spiraled into a global disruption after faulty routing information caused widespread system failures across more than 140 AWS products.

The impact rippled through nearly every industry. E-commerce operations stalled, financial transactions froze, and even airport logistics and delivery systems were forced offline. For small businesses and financial institutions alike, the outage meant lost revenue and productivity — and raised serious questions about risk management in an increasingly cloud-dependent world.

For companies that rely on AWS and similar providers, this incident underscores an urgent issue: when third-party technology fails, who bears the loss? The answer often lies in the fine print of insurance policies and service contracts.

Insurance Considerations

When critical cloud infrastructure fails, the financial impact can be severe. Many organizations assume their insurance will cover such incidents, but policy language matters — and insurers often dispute coverage for outages caused by third-party service providers like AWS.

  1. Business Interruption Coverage

Business Interruption Insurance is designed to cover lost income and operating expenses when business operations are halted due to covered perils. However, many traditional business interruption policies require physical property damage to trigger coverage.

Because an AWS outage involves a virtual or digital disruption, insurers may argue that it does not qualify as a covered event. Some policies now include “non-physical damage Business Interruption” endorsements, which specifically cover cloud or IT system failures — but these must be negotiated in advance.

Key takeaway: Review your Business Interruption Policy to confirm whether “cloud service interruptions” or “network failures” are explicitly included.

  1. Cyber and Technology Liability Coverage

If the outage affects data integrity, security, or access, businesses may need to turn to Cyber Liability Insurance or Technology Errors & Omissions (E&O) Insurance.

  • Cyber Liability Policies may cover financial losses from system downtime, data loss, or third-party claims alleging business interruption.
  • Technology E&O Policies may apply when your business fails to deliver services to clients because of the outage, potentially protecting against breach of contract or negligence claims.

However, insurers often dispute these claims, arguing that the cloud provider—not the insured—was responsible for the failure. Legal counsel can help interpret overlapping coverages and advocate for claim approval.

  1. Directors and Officers (D&O) Liability Coverage

In severe outages that cause significant financial losses, shareholders or clients may allege management failed to plan adequately for operational risks. D&O Insurance can protect corporate officers and directors from personal liability arising from such claims.

Having a D&O policy that contemplates technology risk and vendor dependency is increasingly important in the digital era.

Legal Implications for Businesses

  1. Breach of Contract Claims

Businesses that rely on AWS for critical operations may face breach of contract claims if they fail to meet obligations to clients or partners during such outages. For instance, a vendor unable to deliver services due to AWS downtime could be held accountable for not fulfilling contractual commitments.

  1. Supply Chain and Vendor Disputes

Companies dependent on third-party vendors hosted on AWS may experience cascading disruptions throughout their supply chain. Disputes over responsibility for lost revenue, delayed services, or failed deliveries could lead to litigation.

  1. Class Action Exposure

For businesses serving large customer bases, such as e-commerce platforms or payment processors, outages can trigger coordinated claims from clients or users. Legal guidance is crucial to navigate these scenarios and protect the company from potentially costly lawsuits.

Risk Mitigation and Legal Counseling

Herold Law, P.A. helps businesses prepare for these kinds of disruptions by:

  • Reviewing contracts and SLAs to ensure risk is clearly allocated with cloud providers and partners.
  • Advising on insurance policies to ensure business interruption and cyber coverage are adequate.
  • Strategizing litigation response in the event of claims arising from outages.
  • Guiding risk mitigation with fallback procedures, operational continuity plans, and vendor diversification.

Turning a Technical Event Into a Legal Strategy – Contact Our New Jersey Business and Insurance Lawyers at Herold Law, P.A.

The AWS outage illustrates a critical point: businesses are increasingly exposed to operational, contractual, and financial risks from technology failures. Having legal counsel that understands commercial litigation and business insurance is essential for navigating the fallout and protecting the company’s bottom line. Herold Law, P.A. serves businesses across the state, providing guidance on commercial litigation, insurance claims, and risk management strategies. To learn more, call 908‑679‑5011 or contact us online to discuss how to protect your operations from similar disruptions. Our New Jersey Business and Insurance Lawyers are ready to assist. We are located in Warren, New Jersey and serve clients throughout the state.