Banner Health Suits Raise Significant Questions for Data Breach Class Actions

by Patterson Belknap Webb & Tyler LLP
Contact

Banner Health recently announced that hackers may have gained “unauthorized access to patient information” and “payment card data” from approximately 3.7 million patients, health plan members, food and beverage customers, and physicians.  The breach has been reported as the largest for a hospital in 2016.

According to Banner Health, attackers obtained access to the “point-of-sale” systems at food and beverage outlets in its facilities, reminiscent of recent attack suffered by the hospitality industry.  Apparently, Banner Health failed to separate its systems and servers containing personally identifying information (“PII”) and protected health information (“PHI”) from those used for its point-of-sale system.  After the breach, Banner informed its employees and its patients that their data may have been compromised.

Banner Health’s patients and providers wasted little time in bring suit, with both having filed class action complaints in the District of Arizona.  Plaintiffs allege that Banner Health negligently maintained the security of Plaintiffs’ PII and PHI, failed to immediately notify them of the data breach, breached Banner Health’s representations concerning its data security, and violated Plaintiffs’ right to privacy.

Banner Health has not yet filed motions to dismiss or answers.  But given the allegations in the complaints, the district court will need to resolve a number of unsettled questions:

•  Standing: The named Plaintiffs do not know whether hackers accessed—let alone used—their data. Accordingly, they pled that they “live in fear of identity theft” and that they have spent “time and money safeguarding” their personal and private information.  Although the Seventh Circuit held that such allegations are sufficient for Article III standing, the Ninth Circuit has not weighed in on this issue.

•  Contractual Obligations: In other data breach class actions against health care providers and insurers, plaintiffs have claimed—with mixed success—that their contracts incorporated the entities’ PHI and PII privacy policies. In the Banner Health complaints, Plaintiffs have not asserted a claim for breach of contract, instead asserting a promissory estoppel claim.  It is unclear whether this tactic will prove successful.

•  Failure to Notify: Some courts have held that defendants who disclose data breaches or provide free fraud protection services admit—at least at the pleading stage—that plaintiffs were among those affected by a data breach. The complaints in Banner Health, in contrast, show that failure to promptly notify consumers of a breach raises its own set of problems.  Relying on Arizona law, Plaintiffs alleged that Banner Health is liable for not providing notice in the “most expedient manner possible and without unreasonable delay.”

•  Federal Trade Commission (“FTC”) Act Violations: The FTC has stepped up its enforcement efforts against companies that fail to protect consumers’ data. The Commission has concluded that lax cybersecurity practices are “unfair or deceptive acts” under the FTC Act.  That Act, though, does not provide a right of action for private parties.  So, Plaintiffs in Banner Health are bootstrapping recent FTC decisions, claiming that Banner Health acted negligently under Arizona law because it violated the FTC Act.  Plaintiffs may also argue that, in light of the FTC’s recent decisions, Banner Health violated the Arizona Consumer Fraud Act—which, like the FTC Act, prohibits “deceptive or unfair” acts and practices.  Rev. Stat. §44-1522; see Sellinger v. Freeway Mobile Home Sales, 110 Ariz. 573, 575 (1974) (implying a right of action).

These law suits are not the end of Banner Health’s problems.  It does not appear that the Department of Health and Human Services (“DHHS”) has initiated proceedings against Banner Health.  But if the past is a prologue, an enforcement action is a real possibility.  Banner Health owns and operates over 29 hospitals and various other health facilities.  As such, it is a covered entity under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the Health Information Technology for Economic and Clinical Health Act (“HITECH”).  And the implementing regulations for those statutes require covered entities to properly secure electronic PII and PHI—or face monetary penalties.

The Banner Health breach shows the danger of not segregating point-of-sale systems from systems that store medical records.  Indeed, a 2012 study by Verizon showed that point-of-sale systems are responsible for 48% of assets compromised in health care data breaches.  Health care providers should make sure that attackers cannot use point-of-sale systems—especially if those systems are also used by third party vendors—as a jumping off point to access the company’s entire network.

Whatever the Arizona district court ultimately decides, this case should have a significant impact on future data breach class actions.  We will continue to monitor the case, so stay tuned for further updates.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Patterson Belknap Webb & Tyler LLP | Attorney Advertising

Written by:

Patterson Belknap Webb & Tyler LLP
Contact
more
less

Patterson Belknap Webb & Tyler LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.