CyBIR: Cyber and Privacy Breaches – Insurance and Reinsurance

Data Privacy Lawyers: Walker Wilcox & Matousek Law Firm

“Why else would hackers break into a store’s database and steal consumers’ private information?”

Posted in Neiman Marcus

With that, the U.S. Court of Appeals for the Seventh Circuit found that class action plaintiffs in a data breach have Article III standing. This is the first time a federal appeals court reviewed a data breach class action that had been dismissed on standing grounds.

The July 20 decision arises from the Neiman Marcus data breach that compromised approximately 350,000 credit cards. Plaintiffs filed a consolidated class action complaint which Neiman Marcus moved to dismiss. Standing was the only legal issue addressed on appeal.

Plaintiffs made six arguments in support of their claim, none of which are unique to data breach claims but nor had they been addressed by the Seventh Circuit until now:

  • Injury for lost time and money resolving fraudulent charges;
  • Injury for lost time and money for protecting against future identity theft;
  • Injury for financial loss of making purchases at Neiman Marcus that the plaintiffs would not have made had they known about the lax cybersecurity;
  • Injury for lost control over the value of personal information;
  • Future injury of increased risk of future fraudulent charges; and
  • Future injury of greater susceptibility to identity theft.

The court distinguished the “future harm” claim from the frequently cited Clapper v. Amnesty Int’l. decision because Clapper showed no evidence that the plaintiffs’ data was actually taken.

In so doing, the Seventh Circuit deviated from the majority rule and followed the California district court’s opinion in In re Adobe which determined that an “immediate and very real” risk existed that hackers would use a customer’s personal information. The Seventh Circuit said that plaintiffs do not have to wait for actual identify theft because there was an “objectively reasonable likelihood” that identify theft would occur.

The news was not all bad for Neiman Marcus. The court rejected plaintiffs’ claim that they over-payed for their purchases at Neiman Marcus because the store did not have adequate data security. The court found that these types of allegations relate to the inherent deficiency of a product which was not at issue.

But the U.S. Supreme Court may still have the last word. It has accepted the case Spokeo, Inc. v. Robins to decide whether standing exists for a plaintiff who suffers no concrete harm by authorizing a private right of action based on a violation of a federal statute.  Spokeo Cert Amicus Brief (01023634xAE57E)

A Quiz You Want to Fail: How Many Times Has Your Personal Data Been Hacked?

Posted in Hacking, Privacy

Take the New York Times’ interactive quiz in the July 29, 2015 edition to estimate how many times your personal data may have been exposed to hackers.  (New York Times Quiz)

Have you applied to or worked in the federal government since 2000?  Who is your health insurer?  Do you  have an account on certain websites such as  AOL or Twitter?  Have you used a credit or debit card at stores such as Target or Neiman Marcus?

Depending on your  level of involvement with these companies, you’ll see how many times your name, address, date of birth, email, credit card, debit card, employment history and financial information have been exposed to hackers. Each data point accumulated by hackers allows them to identify more individuals.

Just about every day one more entry can be added to the list- including United Airlines which today announced its systems and possibly flight manifests were accessed by the same group suspected in the Anthem and OPM breaches.   ( United Airline detects large scale intrusion into its systems)


Why it Matters if your Medical Identity is Stolen

Posted in Healthcare, Medical Records, UCLA Health Systems

UCLA Health System is the latest to announce that a data breach may affect as many as 4.5 million people.  So far UCLA has not found evidence that personal or medical information was accessed.

Medical breaches can be as expensive to an individual as a financial breach and involve potentially dire consequences.

What can a stolen medical ID be used for?

  • to obtain medical services at your expense
  • to obtain false prescriptions for sale on the black market
  • to combine a patient number with a false provider number and file false claims with insurers
  • to obtain medical services with the beneficiary’s consent. A substantial portion of identity theft is consensual between friends and family, although this may wane as more people acquire insurance under the Affordable Health Care Act.

What are some of the consequences of medical identity theft?

  • denial of or increased premiums for life or disability insurance based on inaccurate medical history
  • denial of medical insurance benefits because aggregate policy limits were exhausted by fraudulent use
  • improper medical treatment based on inaccurate medical records
  • liability for a fraudulent medical bill, unlike reimbursement for fraudulent withdrawal of funds or credit card use
  • denial of employment if a background search discloses a disqualifying medical condition

Individuals are not the only ones at risks. Heath care providers also can  have their medical provider identifiers stolen.  The most common approaches are:

  • fraudsters use a physician’s medical identifier to make it appear that the provider ordered health services
  • fraudsters use physician’s medical identifier to make it appear that a physician provided and billed services directly even though the physician never saw the patients.  In addition, the IRS may pursue the physician for not paying taxes on income the provider is erroneously recorded as having received.



Court of Appeals Allows Class Action to Proceed Against Neiman Marcus

Posted in credit monitoring, standing

On July 20, 2015 the U.S. Court of Appeals for the 7th Circuit addressed the issue of standing in a suit by class action plaintiffs against Neiman Marcus following a 2013 data breach.  Neiman Marcus Opinion (01008181xAE57E)

In a significant decision by an influential court, the 7th Circuit ruled that plaintiffs showed a substantial risk of harm from the breach and therefore have standing to sue.

The class members alleged lost time and money resolving fraudulent charges and protecting themselves from future identify theft, lost value of purchases that they would not have made had they known of the store’s “careless approach to cybersecurity” and lost control over the value of their personal information.

Allegations of future harm can establish Article III standing if the harm is  impending but allegations of possible future injury are not sufficient.

The Court of Appeals relied on the California federal district court’s reasoning in In re Adobe Sys. Privacy Litigation when it stated “the Neiman Marcus customers should not have to wait until hackers commit identity theft or credit card fraud in order to give the class standing because there is an objectively reasonable  likelihood that such an injury will occur.”  The Court of Appeals commented that it is unlikely that Neiman Marcus offered credit monitoring because “the risk is so ephemeral that it can safely be disregarded.”  It also described credit monitoring costs as a concrete injury.

This opinion is one of the few to find standing in a data breach case but it may be the one that turns the tide for plaintiffs.   It also calls for another look at whether offering credit monitoring escalates a future risk into a recoverable harm.

Who Covers the CIO In a Privacy Lawsuit?

Posted in CIO, Coverage, D&O, OPM

The CIO for the Office of Personnel Management is one of 4 defendants recently sued by the federal workers’ union for failing to correct known deficiencies in the system.   The CIO is a frequent casualty of cyber breaches: Target, AOL, the Utah Department of Health, Ohio University.  It is no surprise then that a CIO’s  average tenure is about 5 years, much shorter than other C-suite executives.

Where is the coverage for a CIO named in a privacy-related lawsuit?  There may not be any if the  CIO falls in a gap between privacy and traditional D&O coverage.

On the D&O side, if a CIO who acts in his official capacity is sued because a data breach causes the stock  to drop or shareholders allege breach of fiduciary duty or an agency fines the company for improper data protection, then a D&O policy could respond. But  many D&O policies contain exclusions for invasion of privacy and loss of or damage to tangible property.  And we have already seen several instances where a CGL policy does not respond cyber incidents.

The typical cyber policy covers first and third party claims such as  notification costs, credit monitoring services, forensic investigations, crisis management expenses, regulatory proceedings and third party liability.   A cyber liability policy will not cover shareholder derivative suits.  Additionally, the limits of a cyber policy may be insufficient for the amount of damages claimed against a CIO.

Among the two, the D&O policy is probably better suited to be amended to cover a CIO’s cyber-related loss.


Would federal cyber legislation apply to a federal agency breach?

Posted in Federal Legislation, OPM

There is no shortage of headlines about the massive data breach at the Office of Personnel Management, which reportedly involves about 25 million former and current federal workers, their spouses and those who applied for government background checks.

There was also no shortage of headlines this past spring when both the House of Representatives and the Senate passed cyber security legislation, although the bills have not been reconciled.   So how would the federal legislation apply to the OPM data breach?

It wouldn’t.  The House and Senate measures  push U.S. companies to voluntarily share “cyber threat data” and access to networks by federal investigators.  There is limited protection from liability if personal data is disclosed while being shared.

But neither the House nor Senate legislation requires increased protection of data to prevent or minimize a breach or any notice or monitoring after a breach.  “Non-federal entities” do not appear involved in the OPM breach, so a threshold trigger for the legislation does not exist.    And buried deep in the House bill is this limitation: the NCCIC which receives the shared data shall not have more than 50 permanent positions including contract employees.  Even if the laws did apply to the OPM breach, how much could a 50-person staff accomplish in the face of 25 million involved individuals?

The federal government may have taken a step forward with the legislation, but it would have no effect on a data breach among its own.

Aggregation of Cyber Losses: A Small World Can Be a Dangerous One

Posted in Aggregation

Business Blackout is a joint report just issued by Lloyd’s and the University of Cambridge’s Centre for Risk Studies. It analyzes the insurance impact of a hypothetical attack on power grids that serve 93 million people in the U.S. The fall-out is worse than any disaster movie: financial markets close, products in ports remain unloaded, people cannot get to work, food goes bad from lack of refrigeration, water runs low, hospital generators fail, ATMs run out of cash, tourism halts, social unrest intensifies. The indirect losses continue for years around the globe.

Loss aggregation has emerged as one of the great uncertainties because insurers may have multiple businesses lines affected and reinsurers may have multiple cedants involved in one occurrence. The variety of insurance lines may include property, liability, business interruption, D&O, event cancellation, workers comp, homeowners and auto.

The risk is not just an accumulation of expected cyber losses, but also what the report calls “silent cyber” exposure – when insurers’ portfolios are hit with cyber losses that were neither expected nor priced.

The Blackout scenario is an exaggerated one and unlikely to occur. But the report effectively demonstrates that cyber losses are not restrained by territory or time.  Those insurers writing cyber losses need wordings to protect themselves from the falling domino, and those who think they do not insure cyber losses may want to look again.

Celeste King to Moderate Panel on Cyber Threats to Medical Profession and Developments in Insurance at Crittenden Medical Insurance Conference

Posted in Uncategorized
Celeste King will moderate a panel on cyber and privacy threats to the medical profession and developments in cyber/privacy insurance for the medical profession during the 2014 Crittenden Medical Insurance Conference scheduled for March 30-April 1 in San Diego.   Celeste’s panel includes Jeremy Henley, ID Experts, Jean Liu, Director of Compliance Management for Accretive Health and John B. Graham, Professional Liability Product Manager for Zurich North America.  For further information click here(PDF) or visit the Crittenden website:

Meetup.Com Refuses to Pay $300 Ransom to Hackers – Site Struggles to Stay Online

Posted in Uncategorized

From the Chicago Tribune on March 3, 2014:

Social networking website is fighting a sustained battle against cyber attackers who are demanding only $300 to call off a campaign that has kept the site offline for much of the past four days.

The site, which enables strangers to meet for activities of shared interest such as sports and other hobbies, could not be accessed early Monday afternoon.

A Meetup blog said that the company was a victim of a distributed denial of service (DDOS) campaign, a type of attack that knocks websites offline by overwhelming them with incoming traffic. It said that no personal data, including credit card information, had been accessed.Meetup’s co-founder and CEO, Scott Heiferman, said on the company’s blog that it was the first such attack in the site’s 12-year history. He defended the move not to pay the paltry ransom. “We made a decision not to negotiate with criminals,” he said. “Payment could make us (and all well-meaning organizations like us) a target for further extortion demands as word spread in the criminal world.”

He said the small amount was likely a trick and that the perpetrators of the sophisticated attacks would likely demand more… Heiferman’s blog post said the site should be able to protect itself over time, even though it has struggled to stay online since the attacks began on Thursday morning.  He said Meetup spent millions of dollars a year to secure its systems.

The Meetup site and related mobile apps have been intermittently unavailable since Thursday.