Cyber Liability: Data, Privacy and the Perils of Social Networking.
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Transcript of Cyber Liability: Data, Privacy and the Perils of Social Networking.
Cyber Liability: Data, Privacy and the Perils of Social Networking
What Exactly Is Cyber Liability?
Challenges of Cyber Liability
Stupendous growth of electronic data storage and communication has created new challenges for business entities.
Our Dependence on All Things Electronic 1.8 Billion people using the Internet Text, Email, Billing Systems, Payment
Systems, Business Operations, Blackberry, Smartphones
Two Challenging Types of Claims
Cyber-Privacy: Claims arising from a compromise of employee cyber-privacy
Data Breach: Claims arising from a breach of company data (first and third-party)
Response by Insurance Carriers
Carriers recognize that cyber-related claims require a new approach, including tailored policies and careful handling.
New Policies are Being Created
Enhanced Privacy Endorsements Technology and Media Coverage add-ons EPL enhancements
Employee Cyber-Privacy Claims
Employee Privacy and Discrimination Claims Employer makes employment decisions
from social networking site Employer accesses private email
Employer accesses text messages
Disparate application of employer policies
Emails and Social Networking—harassment claims
Legal Claims
From Employees--Negligence claims
Employer Action
Discrimination and Retaliation (Title VII, ADEA, etc
First Amendment speech Common law torts- privacy ECPA- wiretapping act SCPA- stored communications
Volatile Mix Leads to Potential Discrimination Claims
Potential employers are increasingly investigating those sites
0%
10%
20%
30%
40%
50%
60%
70%
80%
1
Adults with social networkingsites
Recruiters using internet inscreening process
Recruiters eliminatingcandidates based on internetinfo
Liability Risks Posed by Social Networking
Traditional EPL Claims: Hiring/Termination Claims--Title VII, ADA, ADEA
Disparate Treatment Claims --Inconsistent Application of Social Networking Policies
Newer EPL “Social Networking” Claims: Accessing personal email, texts,
social sites
Defamation, Libel, Breach of Privacy, Punitive Damages Due
To “Willful” Acts
Cyber Privacy Claims
City of Ontario v Quon
Does Fourth Amendment Protect Electronic Communications Employer audited City-owned Pager Discovered sexually explicit messages
(wife, girlfriend, buddy) All sued city and arch Ninth Circuit—Arch violated SCA and city
violated 4th amendment
Inquiring Employers…What are Employees Saying ?
Konop v. Hawaiian Airlines
Pilot maintained a private website where he criticized employer
Manager obtained password from employee who was a member
Ct Denied SJ—issue whether employee had authority to authorize mgt to access private website
Accessing MySpace
Pietrylo v Hillstone Restaurant Group Employees created password –protected
MySpace page to complain No managers allowed Manager got log-in from e’ee Employees fired; then sued NJ Fed Ct: e’ee coerced into giving p’wd Jury: SCA and state law violations Jury Verdict upheld
Accessing Private Account Emails
Van Alstyne v. Electronic Scriptorium Ltd.
Non-Compete case, e’er accessed private email accounts using info left on e’ee’s
computer: E’ee counter sued
SCA allows for statutory damages in the event any actual damages are proven-E’ee awarded 400k
SCA permits punitive damages and attorneys’ fees
Statutory damages --proof of actual damages
Accessing Personal Email left by Employee
Pure Power Boot Camp v Warrior Fitness Boot Camp Non-compete case, E’er accessed
personal email on e’er’s computer Handbook: E’ee no right of privacy..
Handbook did not expressly cover employee’s personal accounts
E’ee had right of privacy
Risk Management—Cyber Privacy Policies
Content of the policy --clear and appropriate
Specify all communications (not just work-related) are owned or will be monitored by the Insured
Policy should apply to both work e-mail accounts and private e-mails and accounts
SCA consent authorization Blogging– Restrict Comments about E’er
Data Breach Claims
Claim Examples – Data Breach Online retailer hacked and customer credit card
information is stolen: regulatory and class actions
Companies unknowingly spread a worm, facing liability from those parties based upon lost revenues caused by the virus.
Disgruntled employee deletes the company’s databases, causing business interruption
Computer hacker floods a company’s website, overwhelming the system and causing it to crash.
Private medical info is stolen or disclosed, leading to a suit for defamation and invasion of privacy.
Compromised Data
285 Million records were compromised in 2008
25% of Companies With IT Outage for 2-6 days go bankrupt immediately
Heartland Payment Systems: credit card numbers of clients
Cost: $12.5 Million in legal fees, costs and settlements
Credit Card Numbers are purchased by “information gangsters”
Dave & Busters: FTC Complaint Intruder exploited vulnerabilities in
systems 130,000 unique credit cards stolen Issuing Banks Claimed over $500,000
in unauthorized charges Settled
Before TJ Maxx, no recognized private
cause of action for data breach Judge let three theories survive:
Two theories of negligent misrepresentation regarding their cyber security
Lack of security measures amounted to Unfair and Deceptive Business Practice
Settled with Banks for $525,000 Total Cost over $40 million
Data Breach Claims
The potential claims are at least as varied as the potential claimants: Actual loss (theft) of customer, client or employee data Extortion based on a threatened loss of customer, client
or employee data Monitoring or repairing of credit reports for those
effected by a data breach Notices issued to those effected by a data breach Public relations activity necessitated by a data breach Remediation and repair of systems due to a data breach Lost profits caused by a data breach
Data Breach Claims Are on the Rise Depending on the type of breach, costs can vary significantly, from
$750,000 to $31,000,000 in 2009.
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
Lowest Highest
Series1
Data Breach Claims Are on the Rise The average per-customer cost of data-breach claims
has increased over the last year alone. Avg. Cost per Customer
201
202
202
203
203
204
204
205
2008 2009
Avg. Cost per Customer
Data Breach Claims Are on the Rise The increased per-customer cost translates to large increases in
costs per breach.
6,600,000
6,620,000
6,640,000
6,660,000
6,680,000
6,700,000
6,720,000
6,740,000
6,760,000
2008 2009
Avg. Cost per Breach
Avg. Cost per Breach
Data Breach – Sources of Loss
What are the sources of potential loss to the insured? While the most common (and most elusive) source of loss is a
civil action by the individual effected by the breach, there are other sources of potential liability for the insured: Violation of “Red Flag Rules” (requiring entities to implement an
identity theft prevention program) under the Fair and Accurate Credit Transactions Act, enforced by the Federal Trade Commission (“FTC”)
Health Information Technology for Economic and Clinical Health Act, enforced by the FTC and the Department of Health and Human Services
Children’s Online Privacy Protection Act CAN-SPAM Act Gramm-Leach-Bliley Act Fair Credit Reporting Act Computer Fraud and Abuse Act Federal Privacy Act State attorney general actions and consumer protection laws
Data Breach – Potential Damages
What are the potential damages to which the insured could be exposed? Depending on governmental involvement, the
strategy of the claimant, and the approach of the Insured, multiple damages are possible: Compensatory damages (although difficult to prove) Consequential damages Punitive damages Fines and fees (imposed by regulatory agencies) Remediation of hardware and software Lost profits and goodwill Notification of effected individuals/entities Monitoring of effected individuals/entities
Federal “Red Flags” Rules The “Red Flags Rules,” were
promulgated under the Fair and Accurate Credit Transactions Report Act. 16 CFR 681.1.
Any company holding credit data could be subject
Requires a Written Identify Theft Prevention Program
June 1, 2010 Implementation
Insurance For Cyber Claims
Gaps in Traditional Insurance Policies
Property Insurance policies – “Property” : Tangible vs. Intangible
D&O: Property exclusion; Professional services exclusion; not covered by insuring clauses
Crime/Fidelity policies –Tangible Property
CGL: Exclusions for losses associated with unauthorized access by third parties.
Errors & Omissions policies – Generally exclude security breaches or damages arising from unauthorized access.
EPL policies – Not covered by Insuring Clauses.
Cyber Liability – Covered Risks
Generally, cyber liability policies address two types of risks:
First Party: losses suffered directly by the Insured Third Party: losses associated with the Insured’s
liability for damages suffered by a third party
First Party Losses
Business interruption costs Crisis management and public relations
costs Privacy notifications and credit monitoring
costs Costs associated with theft or vandalism of
a company’s network or systems Upgrades in network security
Third Party Losses
Disclosure Injuries: unauthorized access to or dissemination of a third party’s private information
Content Injuries: copyright, trademark, trade secrets or other intellectual property claims
Reputation Injuries: libel, slander, defamation, invasion of privacy claims
System Injuries: security failures or virus transmissions that harm the computer systems of third parties
Impaired Access Injuries: customers cannot access their accounts or information
6 Separate Insuring Clauses!
1) Technology Security Wrongful Act 2) Privacy Wrongful Act 3) Private Information Breach 4) Web Media Services Wrongful Act 5) Extortion Loss from Technology
Threat 6) Data Restoration Loss from Breach
Cyber Liability Coverage by Endorsement Insurers have customized traditional
Policies to provide additional coverage for specific cyber risks by endorsements. For example: EPLI Policies – coverage for employee related theft or
third party unauthorized access to private information.
E&O Policies – coverage for e-commerce activities, security breaches, and unauthorized access
Property & Crime Policies – coverage for “intangible” property like data
Data Breach – Cause of the Breach What was the cause of the breach?
The cause of the breach can effect both potential liability and coverage: External hacking Wrongdoing internal to the insured Failure of controls or preventative measures Failure of hardware or software Wrongdoing or failure of a vendor or other
related third-party entity
Data Breach – Data Involved
What type of data was involved? Personally Identifiable Information (PII) is
the most common, and will be the focus here: First name or initial combined with a social
security number, driver’s license number, state ID number, or account number with access code or password
Other sources of potential concern include proprietary data of a vendor or internal proprietary data.
Data Breach – Risk Mitigation
What needs to be done to mitigate the effect of a data breach? Once a breach has occurred, the insured has
multiple options for mitigating the breach (some of which may impact coverage). Incident analysis (internal communication,
containment, harm determination) Incident disclosure (notice to effected
individuals, vendors, regulatory agencies) Loss mitigation (trending, benchmarking,
remediation)
Evaluating a Data Breach
When a data breach occurs, immediate and decisive action is required: Evaluate the potential scope of the loss, in
terms of individuals effected Identify the governmental and regulatory
agencies with whom communication is necessary
Understand how mitigation strategies effect costs and coverage
Handling a Data Breach Claim
Pro-Active: Hiring Counsel and Waiting for 90 day Report May Cost Insurer Millions
Immediate Retention of IT or Privacy Expert
Boots on the Ground Approach May be More Effective
Conclusion
Privacy and Data Breach Claims are Coming Your Way!
First Party Losses inThird Party Claims
Often a third party liability claim will involve direct losses by the Insured A third party cyber liability policy may
provide coverage for certain direct losses associated with a claim (or a potential claim) by a third party. These may include: Security breach notifications Credit monitoring costs Crisis management consultation
Data Breach Claims
A data breach can cost millions of dollars, based on the type and amount of data effected.
Any entity that stores third-party data can be at risk, including (but certainly not limited to): Retailers Financial institutions Health care providers
Data Breach Claims
While Employment Practices claims present a distinct challenge to Insured employers - and therefore Insurers - the loss, compromise, or misuse of electronic data presents a more nuanced, and potentially more severe, risk.
Cyber Privacy – What Is Simple?
Most employers would likely agree that the Facebook employee was rightly fired, with cause.
However, they (and we) need to think about the response. It was not necessary for the manager to
respond in a public forum. The mix of a public forum and use of
profane, disparaging phrases could create liability, even though the employee “clearly” asked for it.
It is never again going to be simple…
Claim Examples - Other Some claims do not fall neatly in the categories of
“employee privacy” or “data breach,” and relate more to traditional causes of action through new mediums (such as defamation, copyright infringement, and patent infringement): Online publisher allows defamatory postings about a local
public figure, causing the public official to lose his job. Company is sued for unauthorized use of a person’s photo
on its website. A small business creates a website and is sued by another
company alleging that their domain name violated trademark laws.