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California Amends Data Breach Law

On September 30, 2014, California joined the trend and enacted amendments to its data security laws.

First, the new law expands its scope to third-party service providers and businesses that do not just “own or license personal information,” but merely “maintain” that data. Previously, the California statute mandating businesses to “implement and maintain reasonable security procedures and practices” only applied to businesses that “own or license personal information.”

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

I first published this article in 2010. Surprisingly, its as relevant today – perhaps even more relevant – than it was four years ago.

Rick

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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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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The Insurance Industry: In Regulators’ Sights

If you’re an insurance company, it may be time to open your cyber-related checkbooks if you haven’t done so already. New York Governor Andrew Cuomo’s Department of Financial Services (“NYSDF”) soon may be watching you. They’re already asking questions as if certain insurers were “persons of interest,” just as it did earlier this year with certain of the larger banks.

On May 28, the NYSDF sent what are referred to as “308 letters” to 31 regulated health, life and general liability insurance companies (seemingly those with the highest premium revenue). The NYSDF’s letters request information on (1) the insurers’ existing IT-related management policies and procedures with respect to the prevention of cyber attacks, (2) actual cyber attacks occurring within the past three years, (3) the quantum of funds and resources dedicated to cybersecurity, and (4) how they safeguard customers’ and business entities’ health and personally identifiable information (the letters specifically identify financial information as a subject category).

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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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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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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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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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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 »

Cyber Security On President Obama’s Agenda

Faced with revitalizing a deteriorated economy, formulating a national budget, and the aftermath of Osama Bin Laden’s death, President Barack Obama has his hands full. Yet, in the midst of all the issues commanding the White House’s attention, the Obama Administration somehow has found time to address the threats to our nation’s cyber security.

According to Business Insurance, on Thursday, May 12, 2011, the Obama Administration proposed cyber security legislation to improve protection for individuals and the federal government’s computer and network systems. The proposed legislation would address national data breach reporting by creating simpler and standardized reporting requirements for the 47 states that contain such requirements. The proposal would also synchronize penalties for computer crimes with other crimes. Additionally, the government, through the Department of Homeland Security, would become directly involved in assisting the industry as well as state and local governments in policing and enforcing cyber security. The proposed legislation encourages the state and local governments to share information with the Department of Homeland Security about cyber threats or related incidents by providing them with immunity for doing so.

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Cyber Crime and Securities Fraud Litigation: The Next Wave?

Following the publication of our original post on the implications of a cyber attack on investors’ securities portfolios (see here), we have been asked by scores of readers whether securities fraud litigation arising from cyber crime has ensued. Not surprisingly, the answer is “yes.”

Indeed, we have located at least two such cases, one a putative securities fraud class action against a payment processing company and the second an SEC initiated action against a private investor. The results may (or may not) surprise you, depending on your perspective of trial courts’ levels of judicial activism and willingness to render substantive decisions at early stages of litigation.

In re: Heartland Payment Systems, No. 09-1043 (D.N.J. Dec. 07, 2009) remains the paradigm for such litigation. To facilitate its payment processing services, Heartland Payment Systems (“Heartland”) stored millions of credit and debit card numbers on its internal computer network. In December 2007, hackers launched a Structured Query Language Attack (“SQL attack”) on Heartland’s payroll management system. To its credit, Heartland was able to successfully avert the attack before any personally identifiable information was stolen. At the same time, however, the company failed to detect malicious software (“malware”) which had been placed on the network by the SQL attack. The malware infected Heartland’s payment processing system, ultimately enabling the hackers to steal 130 million consumer credit and debit card numbers. Heartland did not discover the breach until January 2009, at which time it notified government authorities and publicly disclosed the event. Over the course of the following month, Heartland’s stock price dropped over $15 per share. Perhaps not surprisingly, shareholder class actions ensued.

In their complaint, plaintiffs alleged that Heartland and its officers and directors had made material misrepresentations and omissions about the December 2007 SQL attack. Specifically, plaintiffs claimed that the defendants concealed the SQL attack and misrepresented the general state of Heartland’s data security. Plaintiffs further alleged that the defendants’ conduct was fraudulent because they were aware that Heartland’s network had been breached, yet they had not fully remedied the problem Read the rest of this entry »

Invasions of Privacy In The Cyber Sphere: Who’s Watching And What They Know About You

Google, Facebook, Twitter, Foursquare—millions of Americans, including myself, depend on these cyber sites as their gateway to information and communication in the outside world. What we may not realize, or choose to ignore for convenience’s sake, is that this gateway lies on a two-way street. The information that we seek using websites such as Google and what we communicate on Facebook and Twitter provide companies with vital data to better market their products to us. This use of information is referred to as “data mining. “

An example of data mining can be seen in the advertisements that pop up on the side of your Facebook home page. Such ads are often relevant to the information posted on your “Profile” page, such as advertisements promoting products from your college alma mater.

At the outset, data mining seems like a win-win situation for both the consumer and the seller—the consumer is marketed with a product in which they are seemingly interested and the company has utilized its advertising budget in an informed, cost-effective manner. At the same time, however, the threat of an invasion of privacy is real and has the attention of members of Congress and federal officials to create legislation regulating the way in which, and the extent to which, our personal information is shared with third parties.

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Identity Theft: Our Children At Risk

Interviewing for your first job as a teenager is as exciting as it is intimidating. Thoughts of what to do with your first paycheck consume your mind as you rehearse your best “do-you-want-fries-with-that” smile. The interview proceeds flawlessly and you start to count the dollar signs as you await the job offer. But imagine your surprise when you are informed that you did not get the job because your background check revealed that you are over $75,000 in debt and five years behind in your child support payments for your eleven year old child…a terrifying thought considering you are only 16 years old.

Adults aren’t the only victims of identity theft. Child identity theft is an increasing and understated crime. A child’s Social Security Number (“SSN”) is the perfect target, as the theft typically goes undetected until years after the crime has taken place. Indeed, the crime might not be discovered until the rightful owner/victim uses his or her SSN for the first time years later. This revelation often occurs when the victim applies for his or her first job or financial aid before college.

The scheme works as follows: businesses are using various techniques to search the Internet for dormant SSNs. These numbers often belong to long-term inmates, dead people or children. Obtaining them is not as difficult as one may think, as SSNs are distributed systematically depending on age, geographical location and when the number is issued. Once it has been determined that no one is actively using the number to obtain credit, the numbers are offered for sale.

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