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Cyber class-action litigation: Insurers’ next significant spend?

The following article was first published by my friends at Advisen for their new Cyber Risk Network. For those who haven’t already done so, check it out.

Rick

Virtually every reader is well aware of the decision from the US Court of Appeals for the First Circuit finding that claims by class-action plaintiffs for “mitigation damages” arising from a cyber breach were viable. Anderson v. Hannaford Brothers Co., 659 F.3d 151 (1st Cir. 2011).

There, the court held under Maine law that, in the abstract, certain claimants whose financial information was stolen could recover certain costs incurred in a reasonable effort to mitigate.

Hannaford Brothers is an extreme outlier in the world of cyber class-action litigation. And—as it should have in my view—the case effectively ended when the District Court, on remand, declined to certify the putative class in light of the claimants’ failure to establish that common issues of law and fact “predominate” over individual issues, a predicate to class certification.

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Risk Based Security’s 2013 Data Breach QuickView Report

The following was provided by my friend Jake Kouns of Risk Based Security, a leading-edge security and threat intelligence company. that provides comprehensive vulnerability and data breach intelligence services.   Thanks Jake.

Rick

Risk Based SecurityWe  are pleased to release our Data Breach Quick view report that shows 2013 broke the previous all-time record for the number of exposed records caused by reported data breach incidents.  The 2,164 incidents reported during 2013 exposed over 822 million records, nearly doubling the previous highest year on record (2011).

Although overshadowed by the number of exposed records, 2013 is also ranked #2 in total reported  data breach incidents, just behind 2012. “When you analyze the data breach activity in 2013 it’s hard to  find any bright-side, said Barry Kouns, CEO of Risk Based Security. “Four of the “Top 10” data breaches all time, were reported in 2013, including the top spot. “

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The Target Breach: Show Me The Insurance

The following article was first published by the Advisen Cyber Risk Network. If you haven’t checked it out, you should. Its extremely informative. And I’ll be a regular contributor.

Cheers.

Rick

By now, almost everyone has read or heard about – or even been directly impacted by – the theft of financial data relating to over 40 million credit and debit cards used at Target stores in November and December last year.

However, the insurance coverage aspects of the breach have generally flown under the radar.

To a company like Target (or whoever is affected by the next breach), the availability of insurance coverage is an important component of crisis management and remediation, litigation and regulatory investigation strategies, and reputational/brand/lost income protection.

So assuming Target has purchased potentially applicable insurance products, what coverages might apply?  And how might they respond?

At a minimum, it can be expected that Target will investigate the availability of coverage under four separate lines of insurance: Cyber, privacy and technology (CPT); general liability; crime/fidelity and; directors and officers liability policies.

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Cyber Security and Data Breaches: Why Directors and Officers Should Be Concerned

Following is an excerpt from the leading chapter in Willis London’s Executive Risks: A Boardroom Guide 2012/2013. If you would like to read the entire chapter, please contact me at rbortnick@cpmy.com. A complete copy will be emailed upon request. Cheers. Rick

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Cyber insurance has become a necessity. Every company that maintains, houses or moves sensitive information is at risk of a data breach, primarily due to the growth and increased sophistication of hackers, malicious software and, most recently, ‘hacktavists’. Even mere employee negligence can lead to a data breach. High-profile companies such as Sony can attest that cyber-intrusions can lead to hundreds of millions, if not billions, of dollars in legal exposure.

Equally troublesome, our expanding online society has introduced new financial risks and exposures that may not be covered under general and professional liability insurance products, including standard directors’ and officers’ (D&O) policies. As such, corporate directors and officers, and their risk-management professionals, must ensure that they buy appropriately tailored policies that provide protection against the rapidly expanding risks to which they could be vulnerable, both personally and professionally.

The risks and costs of a data breach

It has become known as the Year of the Breach: in 2011, companies of all sizes experienced malicious intrusions or employee negligence that affected their operations and/or businesses. For example, in April 2011, computer hacktavists unlawfully accessed the Sony PlayStation Network (PSN) and obtained the personal and financial information of roughly 77 million PSN users. Since then, Sony and its insurers likely have spent tens, if not hundreds, of millions of dollars to remedy and mitigate the resulting security and commercial crises — an amount that grows by the day as lawyers prosecute class action lawsuits on behalf of allegedly affected users whose personal and financial information was improperly accessed.

Equally problematic for Sony, it has been sued by its commercial general liability (CGL) insurer, which sought to avoid coverage by arguing that its general liability policies do not and never were intended to cover data breaches.

The TJX Companies also fell victim to a cyber intrusion that security experts predict will have long-term costs of between US$4 billion and US$8 billion in fines, legal fees, notification expenses and brand impairment. In the TJX case, the retail group reported that 45.6 million credit and debit card numbers were stolen from one of its systems during the period July 2005 to January 2007. Of critical import, the January 2007 intrusion occurred after TJX already had knowledge of the initial breaches.

Of course, big corporations are not the only entities that are vulnerable to hackers and hacktavisits; indeed, half of all companies that have experienced data breaches have fewer than 1,000 employees.

 

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Cyber, Privacy and Technology Best Practices and Reputational Harm: Why Legal Professionals Need a Lawyer’s Advice, Counsel and Privileges

BabyB_LPlate_improvedIntroduction

Lawyers, like other professionals, often have access to their clients’ personal and financial details. At the same time, they may possess comparable information about their clients’ clients (such as when a lawyer represents a healthcare company). As a result, lawyers are at risk for being sued if and when something happens to that information – such as when a laptop or cell phone is misplaced or stolen or a hacker breaches a law firm or client’s systems and accesses the client’s personally identifiable, health care, and/or confidential information.
The most prudent way to avoid such lawsuits and minimize their impact is to create and implement cyber, privacy and technology (“CPT”) best practices before something goes wrong. In most cases, this would include best practices training and education as well as the purchase of dedicated CPT-specific insurance. This article discusses why lawyers are at risk, how to create and implement best practices, and the advantages of CBT insurance coverage rather than (mistakenly) relying on professional errors and omissions and/or general liability coverage in the event of a CPT incident.

Executive Summary

An attorney’s reputation is his and her lifeblood. Indeed, reputation translates to the bottom line. For better or worse.
And, of course, reputation is, in large part, predicated on the quality, timeliness and cost-effectiveness of the services being provided. So too, it is incumbent that an attorney avoid negative commentary (or embarrassing revelations) through the pervasive and ubiquitous medium of social media. As a corollary, attorneys, like others, must be sensitive to the loss of customer goodwill, whether measured by turnover, client retention or other intangible assets.

Regardless of whether your clients are the Fortune 500, middle-market companies or small entrepreneurs, an attorneys’ clients – and by extension, the attorney himself and herself (to the extent the attorney holds personal, health or commercial information) – are at risk of losing personally identifiable information (“PII”), personal health information (“PHI”) and/or confidential commercial information (“CCI”). It doesn’t matter whether the harm is attributable to malicious activity or simple employee or third-party negligence. It’s the effect that is the focus, not necessarily the cause (although that too factors into the analysis).

In many cases, the effect of a cyber incident could be devastating, if not fatal, to an attorney’s reputation. And, by extension, his or her practice’s economic viability.
It is almost axiomatic to say that “best practices” are among the most important strategies employed by attorneys and other professionals. Just as we counsel clients to use best practices with respect to their operations, so too, we, as professionals, should be well-trained on the scope and extent of best practices in the subject matter presented, including, in particular, CPT risks and exposures, which, to no surprise, are palpable and potentially devastating.

In the CPT context, among others, best practices counseling should be provided by an attorney. Unlike non-lawyers, attorneys bring with them the attorney-client privilege and work product protection. Although vendors and IT specialists can promote themselves as having the appropriate knowledge and training to teach and implement best practices, they do possess the critical protections afforded by the attorney-client relationship. In a relatively new space like CPT, where the law is uncertain and developing, the privileges become even more important, as many attorneys are just at the start of the learning curve.

To continue reading, please contact me at rbortnick@cpmy.com. A complete copy will be emailed upon request. Cheers. Rick

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Asia-Pacific Cyber Law Risks and Developments

We first published the following White Paper extract in October 2011. While the White Paper might be somewhat dated (and therefore will be refreshed shortly), it remains relevant for our friends interested in learning the basics of Asia Pacific cyber/privacy law. Please let me know if you’d like to see the entire paper. Rick

I. Introduction

The Internet facilitates the widespread and instantaneous flow of information across international borders. While the advent of this method of transnational communication has truly created a “global economy,” at the same time, it has engendered problems for companies and their insurers which seek to assess risk and implement information safeguards, particularly in the face of divergent data privacy laws which vary from region to region or may not even exist in certain jurisdictions. The Asia-Pacific region typifies such a lack of uniformity.

At the same time, the emerging economies in this rapidly growing part of the world have generated promising targets for computer hackers. 75% of Asia-Pacific enterprises have experienced cyber attacks in the past 12 months. Perhaps not surprisingly, a 2010 study by Symantec reported that almost half of all Asia-Pacific-based businesses (and 67% in Singapore) ranked cyber risk and information security as their top concern—more so than natural disasters, terrorism, and traditional crime combined. Cyber attacks and data breaches are on the radar of CEOs and risk managers for good reason: the average cost for a large company to remediate a data breach in Australia increased to nearly $2 million in 2010, which is slightly up from 2009. See Ponemon Institute/Symantec 2010 Annual Study: Australian Cost of a Data Breach (May 2011).

Notwithstanding the prevalence of such attacks, it is far more likely that a cyber security program is managed as a part of a company’s traditional business risks, with traditional coverages being contorted to cover various components of cyber risk (i.e. property loss, liability to third-parties, business interruption, etc.), rather than by way of a dedicated cyber-specific insurance program. Still, in light of recent developments, it is virtually certain that companies soon will begin looking to transfer such risk via more efficient and targeted technology insurance forms and policies

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Cyber Liability Insurance: The Value of an Educated Broker in the Age of E-Commerce

Introduction: Insurance Products for Cyber Risks

Media reports of cyber intrusions, data thefts and computer system malfunctions involving large, high-profile companies such as Sony PlayStation, Citigroup and Lockheed’s Security Vendor, RSA, have led a rapidly growing number of companies to consider the necessity of insurance coverage for technology and cyber privacy risks. As these businesses become more reliant on electronic communication and data storage, they are also developing a heightened awareness that an unauthorized intrusion could endanger their tangible and intangible assets (including their intellectual property) and, in many cases, their reputations and abilities to conduct business. Consequently, prospective policyholders are becoming more cognizant of the necessity for insurance covering these exposures.

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Who Owns Patient Data in Electronic Health Records?

Following is a guest post by Doug Pollack, CIPP/US, chief strategy officer at ID Experts, a leading provider of healthcare privacy and data breach solutions. The article explores the thorny issue of “ownership” as it applies to patient data stored in and shared by electronic health record systems.

Cheers.

Rick

I recently began exploring the question of who, or what entity, owns the data that is incorporated in our patient electronic health records (EHRs). I originally began thinking about this because I was imagining that the “owner” would be responsible under circumstances where there was an unauthorized disclosure of such protected health information (PHI), in other words a data breach. It seemed like such a simple question, I had assumed I would find the answer to be just as straightforward. As it turns out, many have pondered this question and suggest that the question of “ownership” of medical data may be a misplaced one, an unanswerable question, and that the more relevant question is what control the patient, and other members of the health ecosystem, have relative to accessing, modifying, appending and transmission of this data. In other words, how is patient privacy provided for within the new EHR universe?

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Planet Mars, Curiosity, and Data Security

For those captivated by recent events in astronomy, parallels can be drawn between the recent landing of NASA’s rover Curiosity on planet Mars and the public discourse on data security in Canada. With the distinction that one is effectively equipped with the right budget and tools to achieve its actual objective, both have come a very long way, both have managed to blaze through layers of clouds, both seek to secure ingredients essential to life, and both are now aimlessly wandering about unchartered territories.

A decisive factor in Barrack Obama’s 2008 political campaign was the extensive use of individual, thin sliced consumer data to send highly tailored messages to gain political support. Within 13 years, Google has become the most valuable brand in the world through the aggregation of vast amounts of data including search data, or data held in Gmail accounts. This information is then used to create an advertising cruise missile, which is much more efficient than the old method of pattern bombing.

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State Privacy Laws Evolve While Congress Campaigns

New legislation governing data breaches and privacy issues is popping up in states across the country. Most recently, Connecticut, Vermont, and Illinois have enacted new laws in these areas.

Connecticut

At long last, the proposed legislation requiring a data breach to be reported has become law in Connecticut. Section 369-701b was unable to move its way through the 2012 General Session of the Connecticut Legislature, but it was recently passed as part of the Connecticut General Assembly’s Special Session as an attachment of the Budget Bill.

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Human Error: The Greatest Risk and Root Cause of Data Security

Whether discussing data encryption, network security, or internal data privacy management practices and policies, the most sophisticated IT security protocols, the most learned team of specialists, and the most compliant of data management practices and policies cannot escape, prevent, or remedy what many businesses and organizations have rightly labeled as the root cause of data security failures: human error. While they tend to possess greater network security than smaller organizations, the risk of human error should be of particular a concern to medium and large size organizations whose internal controls over data and employees are inevitably diluted by their size and numbers.

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Data Privacy and Unauthorized Non-Hackers: the Rise and Risk of Accountability and Breach Notifications in Canada

Recent unauthorized access to British Columbia Institute of Technology’s computer network, which contained personal medical information of approximately 12,680 individuals, is yet another reminder of risks of exposure to data breaches. That none of the data on BCIT’s computer network was compromised or misused is reflective of a low-profile non-hacker intrusion, and of the ease with which computer networks can be infiltrated. Indeed, a sophisticated hacker would know better than to leave massive amounts of data, rightly labeled by some as the “oil” of the 21st century, uncompromised. More curious than uncompromised data, however, is BCIT’s notification in the absence of an actual data breach, and mandatory breach notification provisions under B.C. privacy law.

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First Circuit Court of Appeals Holds Bank’s Online Security Measures “Commercially Unreasonable” in Landmark Decision

In a landmark decision, the First Circuit Court of Appeals held in Patco Construction Company, Inc. v. People’s United Bank, No. 11-2031 (1st Cir. July 3, 2012) that People’s United Bank (d/b/a Ocean Bank) was required to reimburse its customer, PATCO Construction Co., for approximately $580,000 which had been stolen from PATCO’S bank account. In so doing, the Court reversed the decision of the United States District Court for the District of Maine which had granted summary judgment in the bank’s favor.

The dispute arose when Ocean Bank authorized six fraudulent withdrawals over seven days from an online account held by PATCO. While the bank’s security system flagged each one of the transactions as “high risk” because they were inconsistent with the timing, value, and geographic location of PATCO’s regular payment orders, the bank’s security system did not notify PATCO of this information and allowed the payments to go through. In light of this omission, PATCO sued, alleging that Ocean Bank should bear responsibility for the loss because its security system was not “commercially reasonable” under the Uniform Commercial Code, as codified under Maine Law.

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Insurers: Assert Your Subrogation Rights

The following column was first published in the second issue of Advisen’s Cyber Liability Journal (here). I will republish my future columns in coming months. In the meantime, you can subscribe to the Journal at http://corner.advisen.com/journals.html (here).

Rick

It is axiomatic to say that insurance products evolve. Indeed, like virtually every organic structure, its development, growth and nimbleness are necessary to meet the progress of maturing, service-based economies. Hence, the advent of cyber/tech/privacy liability (CTP) insurance.

At present, there are over 25 markets selling some type of CTP coverage. Many insurers sell standalone products. Others bolt on new coverage parts to their existing products. Still others add endorsements that attempt to extend coverage to address an existing client’s business model.

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Will SEC Guidance Awaken Private Companies To Cyber Insurance Needs?

The following article was first published in Advisen’s inaugural Cyber Liability Journal (here) as my first regular column. The second Journal was published today and is available from Advisen at http://corner.advisen.com/journals.html (here). I will republish my second column in the coming days.

Rick

Many who underwrite or broker insurance, or practice law in the cyber/technology/privacy (“CTP”) realm migrated to this emerging area from the directors and officers liability regime. At the same time, it did not take a crystal ball to recognize that it was only a matter of time before CTP and D&O found a commonality. And that time is now.

Virtually every public and private company is reliant on computer networks and electronic data. It’s a way of life in the 21st Century. And there’s no going back. Yet with reliance comes risk. It seems we read about significant CTP breaches involving large, multinational companies almost on a weekly basis. CTP breaches have become a well-recognized risk of doing business. Estimates project that over 10 percent of us already have been hacked or had their identities stolen. I am among them.

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FAA v. Cooper and the Federal Privacy Act: Narrow Interpretation, Broad Consequences

With its March 28, 2012 decision in Federal Aviation Administration, et al. v. Cooper, 132 S. Ct. 1441 (U.S. 2012), the United States Supreme Court restricted the scope of a federal privacy law, ruling that the law – which allows recovery for “actual damages” – only authorizes damages for monetary losses. Accordingly, a San Francisco pilot was not permitted to recover humiliation and emotional distress damages from government agencies that disclosed his HIV-positive status without his consent.

In 1964, Stanmore Cooper (“Cooper”) obtained his pilot’s license from the Federal Aviation Administration (“FAA”). In 1985, Cooper was diagnosed with HIV and began taking antiretroviral medication. At that time, the FAA did not issue medical certificates to persons with HIV, so Cooper gave up his pilot’s license, knowing that he would not qualify for renewal of his medical certificate. However, in 1994, Cooper re-applied for a pilot’s license and, to receive a medical certificate, purposefully withheld his HIV-positive status and medication from the FAA. He renewed his certificate four more times and as recently as 2004, each time withholding information about his condition. When Cooper’s health began to deteriorate, he applied for long-term disability benefits and, to substantiate his claim, disclosed his HIV-positive status to the Social Security Administration (“SSA”), which awarded him disability benefits.

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WARNING: HHS Now Combating HIPAA Violations With HITECH Weaponry

On March 13, 2012 – almost 30 months after becoming one of the first entities to self-report a breach under the Health Information Technology for Economic and Clinical Health (HITECH) Act – BlueCross BlueShield of Tennessee (BCBST) agreed to pay the Department of Health and Human Services (HHS) a record setting $1.5 million civil monetary penalty (CMP) for failing to safeguard protected health information (PHI).


The HITECH Act and HIPAA Enforcement

HHS adopted the interim final rule for HITECH’s breach notification requirement only a few weeks before the BCBST breach. The final rule requires covered entities to notify HHS following a breach of unsecured PHI. If a breach affects 500 or more individuals, the covered entity must report the breach electronically “without reasonable delay and in no case later than 60 days from discovery of the breach.”

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The Coverage Question

We are grateful to the rapidly-growing number of Cyberinquirer readers who continue to submit substantive content for publication. This truly is an industry blog, and we strive to present alternative points of view from all quarters.

The following article was authored by Gregg A. Rapoport, Esq., and David Lam, CISSP, CPP. Attorney Rapoport has represented policyholders in coverage litigation for over 20 years as part of a broad business litigation practice based in Pasadena, California. Mr. Lam is vice president of the Los Angeles Information Systems Security Association and has over 20 years of experience as an IT and information security professional and author. This article was first published by RIMS, and we appreciate Messrs. Rapoport and Lam offering it for republication here.

Rick Bortnick

As they confront the sobering question of whether their networks and the data they carry are fully secure, today’s “C-level” executives are becoming fluent in once-esoteric information security terms. Many have reached the conclusion that no matter the size of their IT and security budgets, there is no foolproof system for securing the confidentiality, integrity and availability of their data. Company networks remain vulnerable to attacks even if they adhere to industry best practices and run best-of-breed firewalls.

To address these security challenges, companies are relying on their risk managers to evaluate the applicability of existing insurance coverage to data breach incidents, and to assess the value of transferring some of the uncovered financial risk to one of the carriers now offering cyber-risk insurance policies. As the market for these products matures, premiums have come down significantly and policy limits have increased.

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An Insurer’s View: Examining the Rising Costs of Breaches

The following article, written by reknowned London Market underwriter Rick Welsh, was first published in the November 2011 Data Guidance newsletter. A shout out to Rick for passing it on to us for republication.

Rick Bortnick

Today, no company – even with comprehensive privacy policies and practices – can be safe from data breaches. Can companies effectively transfer the risk (and cost) of data breaches by way of insurance? What costs should the companies consider? Almost every reference to the cost of data breaches or ‘cyber crime’ identifies the actual cost of the breach notification as its common currency. In Part One of this analysis, Rick Welsh, Cyber Underwriting Director at ANV, explores this metric’s limitations and the true exposure and cost of data breaches.

The well-regarded Ponemon Institute is constantly measuring the cost of a data breach and is commonly referenced by many to express the rising cost of data breaches. The second annual ‘Cost of Cyber Crime Study’ issued by the Ponemon Institute in August 2011, found that the median annualised cost of cyber crime for the 50 companies in the study was $5.9 million, with a range being between $1.5 million to $36.5 million. The annualised average was up 56% from the previous year’s study.

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New Cybersecurity Disclosure Guidance for Public Companies: Focusing Attention, Raising Questions

As regular Cyberinquirer readers know, on October 12, 2011, the SEC’s Division of Corporate Finance published “suggested” Guidance on public companies’ disclosures of their cyber risks and exposures. I published a personal perspective on the implications of the Guidance in an October 29, 2011 post (here). Since then, our friend John Doernberg of William Gallagher Associates in Boston has written an excellent, thoughtful article which adopts a more technical approach. As many of you may know, John is a Vice President at William Gallagher and focuses on privacy, information security and risk management issues. Before becoming an insurance broker in 1995, John practiced law at leading firms in New York and Boston. The following article first appeared at John’s own site, http://blog.wgains.com/?s=Doernberg, and is being republished here with his permission. Thanks John!

Rick Bortnick

Increased corporate reliance on computer networks and electronic data has brought a corresponding increase in risks associated with breaches of their security. Such breaches have become more frequent and severe. With these Guidelines, the Division has indicated that public companies and their advisors should focus greater attention on how disclosure obligations under the federal securities laws may be affected by the potential financial and operational impact of cybersecurity breaches.

The Guidelines note that cybersecurity breaches (generically referred to as cyber incidents) can be malicious (cyber-attacks) or unintentional. The Guidelines provide something of a rogue’s gallery of cyber malice: the gaining of unauthorized access to steal or corrupt sensitive data or to disrupt operations, denial of service attacks, sophisticated electronic circumvention of network security, and social engineering techniques such as phishing to extract passwords or other information that will enable the gaining of access.

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The Hospitality Industry Revisited: Does Your Company Have Proper Coverage?


101387303-a0006-000338.530x298In a prior post (here), we discussed the frequency of cyber thefts in the hospitality industry in 2009. We have a decent idea of how many of you read that article. For those of you who haven’t, here’s my topic sentence: “38% of the credit card hacking events in 2009 involved the hospitality industry.” Yep. 38%.

And guess what? The hospitality industry remained a high-level target in 2010. Alright, if you’re connected to the hospitality industry, you probably knew that already. But what you might not realize is that you’re not out of the clear. And, things may be getting worse as the frequency of cyber criminality grows, and as the perpetrators become more sophisticated and cyber attacks propagate (more on that below).

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Securities Law and Cyber Disclosures… Perfect Together…Especially for Cyber and Tech Underwriters and Brokers. And Me

Its not often that worlds collide or that interests converge into one amorphous epiphany. But that’s exactly what happened to me recently, when the Division of Corporate Finance (DCF) of the U.S. Securities and Exchange Commission (SEC) issued a Disclosure Guidance identifying the types of information public companies should consider disclosing about cyber risks and events that could impact their financial statements. Now, the DCF has cautioned that the Disclosure Guidance only represents its own views and “is not a rule, regulation, or statement of the Securities and Exchange Commission.” The DCF also emphasizes right up front that “the Commission has neither approved nor disapproved its content.” Yeah, right. YOU be an officer or director or officer of a company that does not “comply” with the DCF’s “recommendations.”

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And Now, the Maine Event: Mitigation Costs Constitute Damages in Data-Breach Case

Businesses that necessarily require their customers to disclose credit card and personal information, beware. Just five days ago, the United States Court of Appeals for the First Circuit held that claims by class action plaintiffs for “mitigation damages” arising from alleged negligence and breach of contract were viable. Anderson v. Hannaford Brothers Co., Nos. 10–2384, 10–2450, 2011 U.S. App. LEXIS 21239 (1st Cir. Oct. 20, 2011).

In Anderson, the electronic payment processing system of a national grocery chain, Hannaford Brothers Co., was breached by hackers in 2007. This resulted in the dissemination of as many as 4.2 million credit card and debit card numbers, expiration dates, and security codes. Hannaford Brothers was not notified of the breach until February 27, 2008 and subsequently contained the breach on March 10, 2008. A week later, Hannaford released a statement regarding the breach and announced that over 1,800 cases of fraud resulting from the theft already had been reported.

Following Hannaford’s announcement, several financial institutions immediately cancelled customers’ debit and credit cards. Some financial institutions, which refrained from immediately canceling the credit card, monitored the accounts for unusual activity, cancelling the cards, in many cases, without notifying the customer. Customers who asked that their cards be cancelled incurred fees from issuing banks for the replacement cards.

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INTRODUCTION TO CANADA’S PIPEDA PRIVACY LEGISLATION

I. Overview

Canada’s privacy regime can be described as a web of legislation at both the federal and provincial/territorial level. Some commentators express concern that this web has become tangled, lacks uniformity and actually undermines the predictability and consistency that, in their view, would exist under a single (federal) privacy regime. Canada has two primary privacy statutes: the Privacy Act and the Personal Information Protection and Electronic Documents Act (“PIPEDA”). The Privacy Act, R.S.C. 1985, c. P-21 (Can.), took effect on July 1, 1983, and imposed certain privacy rights obligations on approximately 250 federal government departments and agencies by limiting the use and disclosure of personal information. The Privacy Act also gives individuals the right to access and, if necessary, correct personal information held by governmental organizations subject to the Act.

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Underwriters and Their Policyholders Agree: Less Is More When It Comes to Crisis Management Expenses

Doug Pollack of IDExperts recently published a blog post on cyber insurance that caught my eye. Insofar as IDExperts is a respected provider of cyber breach response services, I assumed the article would address technical issues. Upon reading the piece, however, I was disappointed to find that the article addressed insurance-related matters, including criteria for the selection of insurance products and programs, a topic typically the province of risk managers, brokers, underwriters and lawyers. Hmmm…

At the outset, the article addresses technical issues, as the author correctly suggests that “privacy, compliance and legal officers should work closely with their risk manager to ensure that the organization is getting a policy that meets its needs.” Having hooked me with that truism, I was looking forward to reading on. But that is where the technical commentary (and our common perspective) ends. From there, the author moves on to express his views (and, in my counter-view, misconceptions) on cyber insurance products and how they should operate.

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For Some Universities, Cyber Insurance Doesn’t Make The Grade

Data security breaches pose a serious threat to a corporation’s financial stability as well as to its credibility in the marketplace. Most notably, the 2007 TJX data security breach, where 45 million credit card and debit card numbers were stolen, cost the company over $4 billion. For many corporations, the solution is to purchase a cyber liability insurance policy, which provides insurance coverage in the event of such a breach.

The risk of data security breaches has also affected students of universities throughout the nation. In June of last year, Cornell University officials informed 45,000 members of the school’s community that their personal information, including their names and social security numbers, was stolen after a University-owned laptop was stolen. Due to such breaches, college officials nationwide have begun purchasing cyber liability insurance policies to offset the financial burdens of a data security breach.

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Cyber Liability Insurance for Universities: Incentivizing Best Practices as a Condition to Coverage (a.k.a “Reverse Underwriting”)

Computer hacking is a constantly evolving and growing threat. While recent high-profile network security breaches at companies such as Epsilon and Sony (with crisis management and other costs estimated to range from $1 billion to multiples thereof in the case of Sony) have helped raise awareness about the need to adequately protect personal identifiable information, the problem has existed for decades.

Yet the situation has only recently begun to receive proper attention from the media, government officials, businesses, and certain segments of the insurance industry. Of course, the cost of a security breach may have something to do with that. According to a study from Marsh and the Ponemon Institute, the typical data breach in FY 2010 resulted in companies and their insurers have to pay an average of $7.2 million to deal with and remedy the situation.

One particularly alluring target for hackers has been educational institutions. While schools and universities may not immediately appear to be obvious targets, the statistics confirm that attacks against educational institutions are on the rise.

In 2007, educational institutions accounted for 25% of all reported data breaches. This number jumped to 33% in 2008. See Sarah Stephens & Shannan Fort, Cyber Liability & Higher Education, Aon Professional Risk Solutions White Paper (December 2008) Read the rest of this entry »