Cybersecurity

Plaintiffs’ Lawyer Predicts $1 Billion Settlement in Data Breach Case – But Where’s the “Harm”?

This week, a high profile plaintiffs’ firm (Edelson) stated that “if done right,” the data breach class actions against Equifax should yield more than $1 billion in cash going directly to more than 143 million consumers (i.e., roughly $7 per person).

No defendant to date has paid anything close to $1 billion.  In fact, the largest class settlements in breach cases hardly get close:  Target Stores paid $10 million (cash reimbursement for actual losses) and The Home Depot paid $13 million (cash reimbursement for actual losses + credit monitoring).  Will Equifax be different?

Part of the answer revolves around the increasingly debated role and importance of “consumer harm” in resolving data breach disputes. READ MORE

Will I Get Sued After a Data Breach? D.C. Circuit Broadens Scope of Data That Gives Rise to Identity Theft in CareFirst

In the latest sign that data breach class actions are here to stay—and, indeed, growing—the D.C. Circuit resuscitated claims against health insurer CareFirst BlueCross and Blue Shield, following a 2015 breach that compromised member names, dates of birth, email addresses, and subscriber identification numbers of approximately 1.1 million individuals.  The decision aligns the second most powerful federal appellate court in the nation with pre-Spokeo decisions in Neiman Marcus and P.F. Chang and post-Spokeo decisions in other circuits (Third, Seventh, and Eleventh).  In short, an increased risk of identity theft constitutes an imminent injury-in-fact, and the risk of future injury is substantial enough to support Article III standing.

The D.C. Circuit’s holding is an important development.  First, the D.C. Circuit went beyond credit card numbers and social security numbers to expand the scope of data types that create a risk to individuals (i.e., names, birthdates, emails, and health insurance subscriber ID numbers).  Second, the decision makes clear that organizations should carefully consider the interplay between encryption (plus other technical data protection measures) and “risk of harm” exceptions to notification, including exceptions that may be available under HIPAA and GLBA statutory regimes. READ MORE

New York DFS Cyber Rules Go Live: Here’s Your Roadmap

August 28, 2017 marks the end of the initial 180-day grace period for compliance under the New York Department of Financial Services’ “first-in-the-nation” cybersecurity regulations (the “Rules”).  The initial regulations were proposed last year, but NY DFS received robust public comments that led to significant amendments.  While the proposed regulations set out proscriptive, one-size-fits-all requirements, the final Rules align more closely to flexible federal, financial sector guidance, captured in the NIST cybersecurity framework and the FFIEC cybersecurity assessment tool.  Accordingly, the final Rules require that cybersecurity programs be calibrated to periodic “risk assessments” that give entities discretion to specify the criteria used to identify, evaluate, and remediate risks, in the context of technological developments and corporate controls.

While covered entities are technically required to be in compliance with the Rules as of Monday, there are additional transitional periods for certain items (see below), and entities have until February 15, 2018 to submit their first certifications to NY DFS.  For organizations still working through compliance requirements, the below steps may help to prioritize and implement a work plan. READ MORE

Five Coverage Tips from Recent E-mail Scam Insurance Decisions

The number of decisions considering claims for insurance coverage resulting from Business Email Compromise (“BEC”) scams has been increasing, providing policyholders with some hope, and some clarity, in this muddy area.  (Here and here).

Policyholders got a recent win when a federal court in New York found in Medidata Solutions, Inc. that a data-services provider’s commercial crime policy covered an almost $5 million loss suffered as a result of a BEC scam.  The Court in Medidata found coverage under the insured’s computer fraud and funds transfer rider, reasoning that “fraudulent access to a computer system” extends to email spoofing.  Parting company with the Fifth Circuit in Apache , the Court in Medidata recognized that such spoofing can be a legal cause of the insured’s loss.  And even though an authorized employee willingly initiated the transfer, the funds were not transferred with Medidata’s “knowledge or consent.”

Despite recent wins, there remains enough uncertainty in the coverage landscape (here and here) that we suspect insurers will continue their full-on fight against coverage for these losses.  To help policyholders prepare for battle, here are five things you can do NOW to maximize insurance coverage for losses from a BEC scam. READ MORE

Insurance Coverage Dispute Over Fraudulent E-mail Scam Heard by Ninth Circuit

Data Privacy Word Cloud Insurance Coverage Dispute Over Fraudulent E-mail Scam Heard by Ninth Circuit

Insurance coverage for “Business Email Compromise” (BEC) scams is a hot issue being litigated by companies and their insurance providers in jurisdictions across the country. The Ninth Circuit is poised to issue what may be an influential decision after hearing oral argument this week in a coverage action initiated by an accounting firm that lost its client’s money to a BEC scam.  Learn more from Orrick attorneys Darren Teshima and Harry Moren at our sister blog, Policyholder Insider.

No Harm, But Foul? FTC Sues Internet of Things Maker D-Link for Security “Vulnerabilities” Despite No Allegations of Breach

Shortly after the new year, the Federal Trade Commission filed suit in the Northern District of California against D-Link Corporation, a Taiwan-based maker of wireless routers, Internet Protocol (IP) cameras, and software used in consumer electronics (such as baby monitors). The complaint alleges that D-Link failed to reasonably secure its products from hackers. Notably, the FTC has not alleged that D‑Link products were exploited by hackers or that a data breach or cyberattack resulted from any alleged security vulnerabilities. Rather, the action is based squarely on security vulnerabilities that “potentially compromis[ed] sensitive consumer information, including live video and audio feeds from D-Link IP cameras” and marketing statements made by D-Link that touted the products’ security features.

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2016 Data Breach Legislation Roundup: What to Know Going Forward

2016 U.S. State Data Breach Legislation Roundup Data Breach Hacker Information Incursion Image of Confernce Table with Businessperson pointing to Data Breach on Screen

States were busy updating their data breach notification statutes in 2016. With 2016 in the rear view, let’s take a look back at the legislative changes that will impact corporate incident response processes and what those trends portend going forward.

Expanded Definition of “Personal Information”

Login Credentials. In 2016, Rhode Island, Nebraska and Illinois (effective January 2017), joined the ranks of states that include usernames (or email addresses) and passwords in the definition of “personal information” that triggers notification obligations. As of this writing, the following eight states may require notification when login credentials are compromised: California, Florida, Illinois, Nebraska, North Dakota, Nevada, Rhode Island and Wyoming.

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DFARS and DIB: Compliance Steps for DoD’s Newly Finalized Cybersecurity Rules for Contractors

Department of Defense Finalized Cybersecurity Rules for Contractors and Other Awardees. The First rule amends the Defense Federal Acquisition Regulation Supplement and went into effect on October 21, 2016 (“DFARS Rule”). The other rule modifies the previously voluntary DoD cybersecurity information sharing program (“DIB Rule”) and is set to come into effect on November 3, 2016. Aerial view of the Pentagon, the Department of Defense headquarters in Arlington, Virginia

For businesses that work with the U.S. Department of Defense (“DoD”), two important rules for safeguarding certain categories of sensitive information and reporting cyber incidents were recently finalized, updating the interim rules promulgated in late 2015. The first rule amends the Defense Federal Acquisition Regulation Supplement (“DFARS Rule”) and went into effect on October 21, 2016.  The second rule modifies the previously voluntary DoD cybersecurity information-sharing program in connection with the Defense Industrial Base (“DIB Rule”) and went into effect on November 3, 2016.

We previously explained the changes brought about by the interim rules. Here, we explain what changed after the rules’ comment periods, and provide suggestions for compliance.

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Keep Reading: Standing Affirmed, but Barnes & Noble Data Breach Class Action Halted

It was about time for data breach defendants to get a win. The District Court for the Northern District of Illinois delivered one to Barnes & Noble in its long-running class action that stems from a breach suffered in 2012. Plaintiffs’ case was dismissed in its entirety on a motion to dismiss under Rule 12(b)(6). This development—just days after the Sixth Circuit in Nationwide had aligned itself with the Seventh Circuit’s Neiman Marcus and P.F. Chang’s decisions that found standing to sue for breach plaintiffs—shows that the legal battle over “harm” may start with standing, but goes nowhere absent alleged damages that tightly match the substantive elements of each claim.

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10 German Data Privacy Supervisory Authorities Investigating Potential Unlawful International Data Transfers

German Data Privacy Supervisory Authorities Investigating Potential Unalwful International Data Transfers Global Data Transfer Map

According to a press release of the Data Protection Supervisory Authority in the Land Mecklenburg Vorpommern of November 3, German supervisory authorities have randomly selected 500 companies in Germany and sent them requests for information on their international data transfers. The German supervisory authorities are undertaking this coordinated action in order to increase awareness among companies of the need to ensure data privacy compliance of international data transfers.

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