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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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The California AG’s New Guide on CalOPPA – A Summary for Privacy Pros

Last week, the California Attorney General’s Office (AGO) released a series of recommendations entitled Making Your Privacy Practices Public (Guide) designed to help companies meet the requirements of California’s Online Privacy Protection Act (CalOPPA) and “provide privacy policy statements that are meaningful to consumers.”

As we have previously discussed, CalOPPA requires website operators to disclose (1) how they respond to Do Not Track (DNT) signals from browsers and other mechanism that express the DNT preference, and (2) whether third parties use or may use the site to track (i.e., collect personally identifiable information about) individual California residents “over time and across third party websites.”   Since the disclosure requirements became law, however, there has been considerable confusion among companies on how exactly to comply, and some maintain that despite W3C efforts, there continues to be no industry-wide accepted definition of what it means to “respond” to DNT signals.  As a result, the AGO engaged in an outreach process, bringing stakeholders together to provide comments on draft recommendations over a period of several months, finally culminating in the AGO publishing the final Guide earlier this week.

The Guide is just that – a guide – rather than a set of binding requirements.  However, the recommendations in the Guide do seem to present a road map for how companies might steer clear of an AGO enforcement action in this area.  As a result, privacy professionals may want to consider matching up the following key recommendations from the Guide with existing privacy policies, to confirm that they align or to consider whether it is necessary and appropriate to make adjustments:

  • Scope of the Policy:  Explain the scope of the policy, such as whether it covers online or offline content, as well as other entities such as subsidiaries.
  • Availability:  Make the policy “conspicuous” which means:
    • for websites, put a link on every page that collects personally identifiable information (PII).
    • for mobile apps that collect PII, put link at point of download, and from within the app – for example: put a link accessible from the “about” or “information” or “settings” page.
  • Do Not Track:
    • Prominently label the section of your policy regarding online tracking, for example: “California Do Not Track Disclosures”.
    • Describe how you respond to a browser’s Do Not Track signal or similar mechanisms within your privacy policy instead of merely providing a link to another website; when evaluating how to “describe” your response, consider:
      • Do you treat users whose browsers express the DNT signal differently from those without one?
      • Do you collect PII about browsing activities over time and third party sites if you receive the DNT signal?  If so, describe uses of the PII.
    • If you choose to link to an online program rather than describe your own response, provide the link with a general description of what the program does.
  • Third Party Tracking:
    • Disclose whether third parties are or may be collecting PII.
    • When drafting the disclosure [...]

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