Data Breach Laws See Flurry of Activity in U.S. and Canada

by Pepper Hamilton LLP
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With South Dakota and Alabama’s new statutes, all 50 states and the District of Columbia have now enacted data breach notification laws. The Oregon and Delaware amended statutes will enhance requirements, and Canada’s new law sets a national standard.

The past few weeks have seen a great deal of activity in the area of data breach notification laws. South Dakota and Alabama — the last stragglers in a nationwide movement to enact state breach notification statutes — have become the final two states to enact such laws. Additionally, Oregon amended its data breach law, imposing new obligations on businesses. In Delaware, last summer’s amendments to the data breach law took effect on April 14, 2018. The Canadian government recently announced that nationwide notification requirements will come into effect on November 1, 2018. Previously, mandatory data breach notification in Canada existed only at the provincial level. Each of these new developments is outlined below.

South Dakota

South Dakota’s breach notification law (S.B. 62) takes effect July 1, 2018.

Under South Dakota’s law, a business must notify affected South Dakota residents of a breach of “personal information” or “protected information” within 60 days of discovery of any breach, subject to certain exceptions. The business must also notify South Dakota’s Attorney General if the breach affects more than 250 residents of the state.

While the new law places South Dakota in line with many states with similar requirements, one differentiating factor is South Dakota’s definition of an “unauthorized person.” Under the statute, a “breach of system security” is defined as the “unauthorized acquisition of . . . personal or protected information maintained by the information holder.” However, the statute goes on to define “unauthorized person” to include not only “any person not authorized to acquire or disclose personal information,” but also “any person authorized by the information holder to access personal information who has acquired or disclosed the personal information outside the guidelines for access of disclosure established by the information holder” (emphasis added). In light of this inclusive language, companies will need to evaluate uses and disclosures in the context of their own data access control rules.

“Personal information” is defined by the South Dakota statute as any one or more of the following, combined with an individual’s first name or first initial and last name:

  • Social Security number
  • driver’s license number or other unique identification number created or collected by a government body
  • a financial account number, credit card or debit card number, in combination with any required security code, access code, password, routing number, PIN or any additional information that would permit access to the account
  • health information (as defined under HIPAA)
  • an identification number assigned to a person by the person's employer in combination with any required security code, access code, password or biometric data generated from measurements or analysis of human body characteristics for authentication purposes.

Additionally, “protected information” under the law includes the following, whether or not accompanied with an individual’s name:

  • a user name or email address, in combination with a password, security question answer or other information that permits access to an online account
  • an account number or credit or debit card number, in combination with any required security code, access code or password that permits access to a person's financial account.

Failure to comply with the requirements of the South Dakota law is considered a “deceptive act” under the state’s consumer protection laws and could lead to penalties of up to $10,000 per day, per violation, plus attorney’s fees and any costs incurred by the state attorney general.

Alabama

Alabama’s Data Breach Notification Act of 2018 (S.B. 318) goes into effect May 1, 2018.

The Alabama statute constructs a regime over “covered entities” as well as “third-party agents.” “Covered entities” include business entities that acquire or use sensitive personally identifying information. “Third-party agents” include entities that have been contracted to maintain, store, process or have otherwise been permitted to access sensitive personally identifying information in connection with providing services to a covered entity.

Covered entities and third-party agents are both required to “implement and maintain reasonable security measures to protect sensitive personally identifying information” against breaches, and, if a breach has occurred, a covered entity must conduct a “good faith and prompt investigation,” which includes the following:

  • an assessment of the nature and scope of the breach
  • identification of the sensitive personally identifying information potentially involved
  • identity of the affected individuals
  • whether the sensitive personally identifying information has been or is reasonably believe to have been acquired, and if it is likely to cause substantial harm to the affected individuals
  • identification and implementation of measures to restore the security and confidentiality of the compromised systems.

In imposing the requirement to maintain protective measures, Alabama joins a minority of states that require preventive (as opposed to only reactive) data security practices. To comply, businesses must take measures that are “practical” and “reasonable,” and include such measures as designating an employee or team to coordinate the company’s security measures, identification of internal and external data security risks, adoption of appropriate safeguards to address identified risks, retention of service providers to assist, evaluation and adjustment of the measures over time, and keeping management and the board appropriately informed of the measures taken.

The new Alabama law defines “sensitive personally identifying information” as an individual’s name or first initial and last name combined with one or more of the following:

  • any information regarding an individual's medical history, mental or physical condition, or medical treatment or diagnosis by a health care professional
  • an individual's health insurance policy number or subscriber identification number and any unique identifier used by a health insurer to identify the individual
  • full Social Security number or tax identification number
  • full driver's license number, state-issued identification card number, passport number, military identification number or other government-issued unique identification number
  • a financial account number (including bank account number), in combination with any security code, access code, password, expiration date or PIN necessary to access the account
  • a user name or email address combined with a password or security question that would permit access to an online account that is reasonably likely to contain sensitive personally identifying information.

Covered entities must notify Alabama residents affected by a breach “as expeditiously as possible and without unreasonable delay,” but no later than 45 days after the determination that the breach has occurred. Alabama’s statute takes a risk-of-harm analysis approach, requiring notification only in the event of a breach that is reasonably likely to cause substantial harm to an affected individual. If more than 1,000 Alabama residents are to be notified, the covered entity must also notify the Alabama Attorney General within 45 days. Third-party agents that experience a breach must notify the covered entity with whom they contract within 10 days of the determination that the breach has occurred.

Alabama’s new law imposes penalties of up to $5,000 per day for each day of noncompliance.

Oregon

Oregon also recently amended its breach notification law. The amendments take effect June 2, 2018.

The amended law will require notification to affected individuals within 45 days after discovery of a breach, and notification to the Oregon Attorney General within the same period if the amount of notified individuals exceeds 250. Oregon’s law has also been expanded to include certain health and insurance information, as well as biometric information, in its definition of “personal information” (when combined with a consumer’s first name or first initial and last name).

Additionally, the amendment broadens the coverage of the statute to impose notification obligations not only on those who “own” or “license” personal information (as in the current law), but also on any person who “maintains” or “otherwise possesses” personal information.

Delaware

Delaware’s August 2017 amendments to its data breach law took effect on April 14, 2018. The amendments were the first since the state’s law was originally enacted in 2005.

Among the notable changes to the law are the expanded definition of “personal information” to include biometric data, online account access credentials and medical history and insurance information, along with other standard data elements seen in data breach laws across the United States, such as passport numbers.

Delaware’s notification timing obligations have also changed, with companies now required to notify affected individuals within 60 days after the determination of a breach, unless certain circumstances apply. Additionally, businesses must now notify the attorney general if they notify more than 500 residents.

Delaware’s new requirements also obligate companies to provide one year of free credit monitoring services to affected individuals if their Social Security numbers were compromised in a breach. As of this writing, Delaware, California and Connecticut are the only states that mandate offering credit monitoring services in such a situation.

Finally, like the Alabama law, companies that conduct business in Delaware and “own, license, or maintain” personal information are now required to “implement and maintain reasonable procedures and practices to prevent the unauthorized acquisition, use, modification, disclosure, or destruction of personal information collected or maintained in the regular course of business.” These types of requirements are important for businesses to monitor and manage because they represent potential points of liability, even in the absence of a data breach.

Canada

Canada imposed mandatory data breach regulations, which take effect November 1, 2018.

On March 26, Canada issued an Order in Counsel, declaring that the breach notification requirements of its Digital Privacy Act of 2015 (the Act) would come into effect on November 1, 2018, creating a nationwide breach notification regime. Previously, mandatory data breach notification existed only at the provincial level. Once effective, the requirements will obligate companies to report breaches (if certain circumstances apply) to (1) the Office of the Privacy Commissioner of Canada (the Commissioner), (2) the affected individuals, and (3) in some cases, other organizations or government institutions. In each case, the notification must be provided “as soon as feasible after the organization determines that the breach has occurred.”

Companies must notify the Commissioner as well as each affected individual of a breach “if it is reasonable in the circumstances to believe that the breach creates a real risk of significant harm to an individual.” The Act specifies that “significant harm” includes bodily harm; humiliation; damage to reputation or relationships; loss of employment, business or professional opportunities; financial loss; identity theft; negative effects on a credit record; and damage to or loss of property.

In addition, companies are required to “notify any other organization, a government institution or a part of a government institution of the breach if the notifying organization believes that the other organization or the government institution or part concerned may be able to reduce the risk of harm that could result from it or mitigate that harm, or if any of the prescribed conditions are satisfied” (emphasis added). However, the proposed Breach of Security Safeguards Regulations (the Regulations) do not currently prescribe any conditions related to notification of organizations.

The data breach regulations do not prescribe a specific time period for reporting a breach. The Regulations do, however, set forth the content required to be included in the notifications to organizations or affected individuals (which includes sufficient information to allow the individual to understand the significance of the breach and to take any steps to mitigate or reduce the risk of any resulting harm), as well as in the notification to the Commissioner. Canadian companies must keep audit records of data breaches for 24 months after they are aware of the security incident.

Failure to comply can result in fines up to CAD 100,000 per day for each person who should have been notified of a data breach.

Pepper Points

  • As data privacy and security issues hit headlines with increasing frequency and the handling of individual data becomes a more widespread public concern, we expect to see continued legal activity in this area.
  • In light of the changing legal landscape and increased public scrutiny, compliance with data breach laws and data protection best practices should be top of mind for companies collecting, processing or storing individual data. It is important to know the scope of the company’s data collection practices in order to assess which legal requirements apply.
  • The evolution in this area is not limited to the United States. Companies should remain aware of international developments in the realm of data privacy and security for any countries from which they may do business or attract customers.

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