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4 Ways to Manage Retirement Plan Data in New Era of Cybersecurity

IBM estimated last year that data breaches cost companies $148 per stolen record. Given that, not surprisingly, many employers have grown increasingly concerned about the potential impact of such breaches, including breaches that may affect employer-sponsored benefit plans.

Courts have not yet formally addressed whether ERISA requires benefit plan fiduciaries to manage cybersecurity risks. However, a federal district court recently rejected a motion to dismiss filed by defendants seeking to avoid liability for fraudulent distributions from a plan caused by cyber criminals. There, the court held that the defendants were plan fiduciaries and that the plaintiffs had pled facts sufficient to allege that the defendants breached their fiduciary duties. Although this decision only relates to a motion to dismiss, the case underscores the potential for plaintiffs to assert, even in the absence of clear guidance, that plan fiduciaries are not doing enough to protect plan participants from cybersecurity risks.

As a result, with cybersecurity concerns on the rise, plan fiduciaries are continuing to enhance their focus on the best ways to protect employee data. Recently, on Law360, McDermott’s Mark E. Schreiber discussed four helpful tips for handling cybersecurity risks.

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Data Breach Insurance: Does Your Policy Have You Covered?

Recent developments in two closely watched cases suggest that companies that experience data breaches may not be able to get insurance coverage under standard commercial general liability (CGL) policies. CGLs typically provide defense and indemnity coverage for the insured against third-party claims for personal injury, bodily injury or property damage. In the emerging area of insurance coverage for data breaches, court decisions about whether insureds can force their insurance companies to cover costs for data breaches under the broad language of CGLs have been mixed, and little appellate-level authority exists.

On May 18, 2015, the Connecticut Supreme Court unanimously affirmed a state appellate court decision that an IBM contractor was not insured under its CGL for the $6 million in losses it suffered as the result of a data breach of personal identifying information (PII) for over 500,000 IBM employees. The contractor lost computer backup tapes containing the employees’ PII in transit when the tapes fell off of a truck onto the side of the road. After the tapes fell out of the truck, an unknown party took them. There was no evidence that anyone ever accessed the data on the tapes or that the loss of the tapes caused injury to any IBM employee. Nevertheless, IBM took steps to protect its employees from potential identity theft, providing a year of credit monitoring services to the affected employees. IBM sought to recover more than $6 million dollars in costs it incurred for the identity protection services from the contractor, and negotiated a settlement with the contractor for that amount.

The contractor filed a claim under its CGL policy for the $6 million in costs it had reimbursed to IBM. The insurer refused to pay. In subsequent litigation with the contractor, the insurer made two main arguments. First, it argued that it only had the duty to defend against a “suit,” and that the negotiations between the contractor and IBM were not a “suit.” Second, the insurer argued that the loss of the tapes was not an “injury” covered by the policy.

The Connecticut Supreme Court adopted both of the insurer’s arguments, and the decision highlights two key areas for any company considering whether it needs additional insurance coverage for data breaches: what constitutes an “injury” under a CGL, and when an insurer is required to reimburse a company for costs associated with an injury. First, the court held that the loss of the computer tapes was not a “personal injury” under the CGL, because there had been no “publication” of the information stored on the tapes. In other words, because there was no evidence that anyone accessed or used the stolen PII, the court found that the data breach did not constitute a “personal injury” under the policy—even though the contractor spent millions of dollars reimbursing IBM for costs associated with the data breach.

Second, the court found that the CGL policy only required the insurer to reimburse [...]

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Update on State Breach Notification Laws

In the first few months of 2015, a number of states have introduced data breach notification bills and proposed legislative amendments designed to enhance consumer protection in response to increasingly high profile data breaches reported in the media.  This activity at the state level seems to indicate  that protecting consumers from data breaches is one area where democrats and republicans can find common ground.

From the text of these bills, some of which have already become law, we see two emerging trends:  (1) an expansion of the definition of personal information to include more categories of data that, if compromised, would trigger a notification requirement, and (2) the addition of a requirement to notify state agencies (such as attorneys general and state insurance commissioners) where none previously existed.

Here are developments in three states reflecting these emerging trends:

Wyoming

In late February, Wyoming passed two bills that amend its existing data breach notification law by specifying the content required in notices to Wyoming residents, modifying the definition of personal information, and providing for covered entities or business associates that comply with HIPAA to be deemed in compliance with the state individual notice requirements.

In particular, Wyoming’s definition of personal information will now include the following:

  • Shared secrets or security tokens that are known to be used for data-based authentication;
  • A username or email address, in combination with a password or security question and answer that would permit access to an online account;
  • A birth or marriage certificate;
  • Medical information (a person’s medical history, mental or physical condition, or medical treatment or diagnosis by a health care professional);
  • Health insurance information (a person’s health insurance policy number or subscriber identification number, any unique identifier used by a health insurer to identify the person or information related to a person’s application and claims history);
  • Unique biometric data (data generated from measurements or analysis of human body characteristics for authentication purposes); and
  • An individual taxpayer identification number.

These changes to Wyoming law will become effective July 1, 2015.

Montana

Beginning October 1, 2015, amendments to Montana’s breach notification law will require entities that experience a data breach affecting Montana residents to notify the Montana Attorney General and, if applicable, the Commissioner of Insurance.  Notification must include an electronic copy of the notice to affected individuals, a statement providing the date and method of distribution of the notification, and an indication of the number of individuals in the state impacted by the breach.  Entities must provide notice to state regulators simultaneously with consumer notices.

The recent amendments to the Montana law also expand the definition of personal information to include medical record information, taxpayer identification numbers and any “identity protection personal identification number” issued by the IRS.  The law specifies that medical information is that which relates to an individual’s physical or mental condition, medical history, medical claims history or medical treatment, and is obtained from [...]

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C-Suite – Changing Tack on the Sea of Data Breach?

The country awoke to what seems to be a common occurrence now: another corporation struck by a massive data breach.  This time it was Anthem, the country’s second largest health insurer, in a breach initially estimated to involve eighty million individuals.  Both individuals’ and employees’ personal information is at issue, in a breach instigated by hackers.

Early reports, however, indicated that this breach might be subtly different than those faced by other corporations in recent years.  The difference isn’t in the breach itself, but in the immediate, transparent and proactive actions that the C-Suite took.

Unlike many breaches in recent history, this attack was discovered internally through corporate investigative and management processes already in place.  Further, the C-Suite took an immediate, proactive and transparent stance: just as the investigative process was launching in earnest within the corporation, the C-Suite took steps to fully advise its customers, its regulators and the public at-large, of the breach.

Anthem’s chief executive officer, Joseph Swedish, sent a personal, detailed e-mail to all customers. An identical message appeared in a widely broadcast press statement.  Swedish outlined the magnitude of the breach, and that the Federal Bureau of Investigation and other investigative and regulatory bodies had already been advised and were working in earnest to stem the breach and its fallout.  He advised that each customer or employee with data at risk was being personally and individually notified.  In a humanizing touch, he admitted that the breach involved his own personal data.

What some data privacy and information security advocates noted was different: The proactive internal measures that discovered the breach before outsiders did; the early decision to cooperate with authorities and press, and the involvement of the corporate C-Suite in notifying the individuals at risk and the public at-large.

The rapid and detailed disclosure could indicate a changing attitude among the American corporate leadership.  Regulators have encouraged transparency and cooperation among Corporate America, the public and regulators as part of an effort to stem the tide of cyber-attacks.  As some regulators and information security experts reason, the criminals are cooperating, so we should as well – we are all in this together.

Will the proactive, transparent and cooperative stance make a difference in the aftermath of such a breach?  Only time will tell but we will be certain to watch with interest.




Employers with Group Health Plans: Have You Notified State Regulators of the Breach?

Data security breaches affecting large segments of the U.S. population continue to dominate the news. Over the past few years, there has been considerable confusion among employers with group health plans regarding the extent of their responsibility to notify state agencies of security breaches when a vendor or other third party with access to participant information suffers a breach. This On the Subject provides answers to several frequently asked questions to help employers with group health plans navigate the challenging regulatory maze.

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