Establish appropriate security measures up-front, perform regular stress-tests on a security system, put in place procedures to address a data breach and implement ways to spread the risk, either through buying insurance or obtaining indemnities from companies that own or store the data...
Another day, another computer data security risk. The Heartbleed bug is further evidence that even companies that employ presumably reliable data security measures are vulnerable to revealing third party data to the public and nefarious cyber thieves, exposing companies to potential cyber liability. Managing that risk is crucial to minimizing a company’s potential liability due to a data breach.
While some industries, like financial services and health care, are statutorily required to design, implement, monitor and test security programs under federal laws — Gramm Leach Bliley and HIPAA — some courts have held that companies, generally, owe a fiduciary duty to safeguard electronic data. Moreover, some states have their own data privacy laws. Any company that stores payment information must maintain minimum data security standards. Still, even companies that meet these standards are susceptible to data breaches. Indeed, Cisco and Juniper said the Heartbleed security flaw affects routers, switches and firewalls often used by businesses.
How companies respond to these breaches can help minimize potential liability. Coordination among IT, legal and risk management teams is critical. How will you neutralize the source of the breach? Who needs to be advised inside and outside the company? When must people be advised? What laws apply? These are just a few of the issues that a company must address in the wake of a breach. Having a plan in place will help the company mobilize and address the breach. Companies also look to insurance to help fund a response, as well as any potential litigation. While traditional insurance policies (e.g., general liability, E&O and management liability) may contain limited data breach coverage, purchasing a cyber liability policy is critical.
Having a plan in place will help the company mobilize and address the breach...
Cyber policies provide varying degrees of coverage for data breaches, from response costs to credit monitoring and payment of defense and indemnity costs arising from data breach-related lawsuits.
Threats to data privacy are not going away, but establishing appropriate security measures up-front, performing regular stress-tests on a security system, putting in place procedures to address a data breach and implementing ways to spread the risk, either through buying insurance or obtaining indemnities from companies that own or store the data, will help manage the risk and put companies in a better position to effectively and efficiently respond to a data breach.
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[Steven H. Weisman is a partner in McCarter & English, LLP’s Insurance Coverage group, which counsels policyholders throughout the U.S. respecting their coverage rights, and is a member of the firm’s Cybersecurity & Data Privacy Task Force, which counsels clients on data security and privacy compliance. He can be reached at sweisman@mccarter.com or at 973-848-5332. This article is for informational purposes only and no reader should act based on this article without seeking appropriate professional advice.
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