All U.S. insurers need to pay attention to the new and comprehensive EU-wide privacy law known as the General Data Protection Regulation1 (GDPR), which takes effect on May 25, 2018. With its greatly expanded compliance obligations, tough penalty regime (fines can be as much as 4% of a company’s worldwide gross revenue), and extra-territorial applicability, even insurers licensed to sell only in the U.S., and with no operations in the EU whatsoever, may nonetheless find that they are subject to the jurisdiction of GDPR.
Continuing to service policies sold in the US to customers who later moved to the EU, for example, may raise issues regarding whether the company’s activities bring it within the jurisdiction of the GDPR, which is designed to protect the personal data of individuals in the EU, regardless of nationality.
The GDPR is a comprehensive reform of European data protection laws intended to strengthen online privacy rights and boost Europe’s digital economy. It provides for a single set of rules for all organizations processing personal data from the EU, removing many of the inconsistencies across Member States that have been associated with the Data Protection Directive.
The extra-territorial scope of the GDPR is very broad, however, and will likely reach many U.S. insurers and other businesses even though they do not have a presence in the EU. Generally, Article 3 provides that the GDPR will apply to U.S.-based companies in three cases:
(a) If the U.S. Business has an “Establishment” in the EU
The GDPR applies to entities who are engaged in the processing of personal data in the context of the activities of an establishment in the EU, regardless of whether the processing takes place in the EU or not. However, establishment in the EU does not require the formal presence of a subsidiary or other legal entity.
The GDPR states that an establishment implies the effective and real exercise of activity through stable arrangements. The legal form of such arrangements, whether through a branch or a subsidiary with a legal personality, is not the determining factor in that respect.
Prior interpretations of the term “establishment” under the Data Protection Directive make clear that that an establishment need not have a legal personality but that a stable establishment requires that “both human and technical resources necessary for the provision of particular services are permanently available.” Thus:
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Where ‘effective and real exercise of activity’ takes place, for example in an attorney’s office through ‘stable arrangements,’ the office would qualify as an establishment.
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A one-person office would qualify as long as the office does more than simply represent a controller established elsewhere, and is actively involved in the activities in the context of which the processing of personal data takes place.
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In any case, the form of the office is not decisive: even a simple agent may be considered as a relevant establishment if his presence in the EU presents sufficient stability.2
In one case, the European Court of Justice held that “the presence of only one representative can, in some circumstances, suffice to constitute a stable arrangement if that representative acts with a sufficient degree of stability through the presence of the necessary equipment for provision of the specific services concerned in the Member State in question.”3
It is also important to note that processing personal data “in the context of” an establishment in the EU does not require processing
by the EU establishment. The existence of an EU-based establishment may trigger applicability of the GDPR over a non-EU entity, even if that local EU establishment is not actually taking any role in the data processing itself, so long as there is an “
inextricable link” between the activities of the EU establishment and the processing of data carried out by the non-EU controller.
For example, the European Court of Justice in the “Google Spain” case found that U.S.-based Google Inc. was processing personal data in the context of an EU establishment because its search activities were inextricably linked to the advertising sales generated by Google Spain, a local subsidiary established in the EU. Because the data processing at issue was related to the search business which Google Spain’s sale of online advertising helped finance, the court found that the processing by Google in the U.S. was carried out “in the context of the activities” of the Spanish establishment.
Therefore, if this “processing of personal data in the context of the activities of an EU establishment” test is met, the GDPR applies irrespective of whether the actual data processing takes place in the EU or not.
(b) If the U.S. Business Offers Goods or Services in the EU
The GDPR also applies to insurers and other businesses not established in the EU if they process the personal data of individuals who are in the EU when offering them goods or services (whether or not in return for payment). This applies to the processing of personal data of any “data subjects who are in the Union,” regardless of their nationality or residence – i.e., it covers the personal data of EU citizens, residents, tourists, and other persons temporarily in the EU (e.g., U.S. businesspersons or military personnel).
The question of what constitutes "offering" goods or services to EU residents is determined on a case-by-case basis. The only guidance on how to interpret this provision indicates that the focus for interpreting this requirement is on the intention of the non-EU entity, rather than on the mere availability of its goods or services.
Thus, while the mere availability of the website of a U.S.-based entity is not sufficient per se, the following website-related factors (among others) have been suggested as strong indications that a non-EU business is intentionally offering goods or services to data subjects in the EU and may therefore be subject to the GDPR:
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Use of the language of an EU Member State (if the language is different than the language of the business’ home state);4
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Use of the currency of an EU Member State (if the currency is different than the currency of the business’ home state);
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Use of a top-level domain name of an EU Member State;
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Mentions of customers based in an EU Member State; or
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Targeted advertising to consumers in an EU Member State.
A key question for insurers may well be the extent to which they offer goods or services to US-based customers who later move (either temporarily or permanently) to the EU, whether such services are offered through their website or other means.
(c) If the U.S. Business Monitors the Behavior of Individuals in the EU
Insurers and other businesses that are not established in the EU, and that do not offer goods or services in the EU, will nonetheless be subject to the GDPR if they process personal data in connection with the “monitoring” of the behavior of EU data subjects.5
The question of what constitutes "monitoring" is determined on a case-by-case basis, but analysis of the GDPR establishes that monitoring appears to be focused on internet activity that includes both:
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tracking an individual on the internet; and
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the use of data processing techniques to profile such individuals in order to analyze or predict personal preferences, behavior and attitudes.
The GDPR defines profiling to be any form of automated processing of personal data “to evaluate certain personal aspects relating to a natural person, in particular to analyse or predict certain aspects concerning that natural person’s performance at work, economic situations, health, personal preferences, interests, reliability, behaviour, location or movement.”
Accordingly, it would seem that monitoring requires not only the gathering of personal data involving personal aspects of natural persons, but the automated processing of such data for the purpose of making decisions about the data subjects.
At this point, however, it is unclear exactly how detailed the monitoring of a data subject must be in order to trigger the application of the GDPR.
Any U.S. business which falls in to one of these three categories must start taking measures now to ensure it will be fully compliant by 25 May 2018.
1 Available at http://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX%3A32016R0679
2 WP 179, Article 29 Working Party, Opinion 8/2010 on applicable law, December 16, 2010, at pp. 11-12.
3 Weltimmo v NAIH (Case C-230/14, October 1, 2015), at Para. 30.
4 See, e.g., the CJEU’s ruling in Weltimmo (Case C230/14), which emphasized that if a company operates a service in the native language of a country (in that case a Slovakian property advertising service operating in Hungary) it could be held accountable to that country’s data protection authority.
5 GDPR Article 3(2)(b) provides that: “This Regulation applies to the processing of personal data of data subjects who are in the Union by a controller or processor not established in the Union, where the processing activities are related to: . . . (b) the monitoring of their behaviour as far as their behaviour takes place within the Union.”
