Category: cybersecurity

Three Trending Topics in IoT: Privacy, Security, and Fog Computing

Cisco has estimated that there will be 50 billion Internet of Things (IoT) devices connected to the Internet by the year 2020. IoT has been a buzzword over the past couple of years. However, the buzz surrounding IoT in the year 2015 has IoT enthusiasts particularly exerted. This year, IoT has taken center stage at many conferences around the world, including the Consumer Electronics Show (CES 2015), SEMI CON 2015, and Createc Japan, among others.

1. IoT will Redefine the Expectations of Privacy

Privacy is of utmost concern to consumers and enterprises alike. For consumers, the deployment of IoT devices in their homes and other places where they typically expect privacy will lead to significant privacy concerns. IoT devices in homes are capable of identifying people’s habits that are otherwise unknown to others. For instance, a washing machine can track how frequently someone does laundry, and what laundry settings they prefer. A shower head can track how often someone showers and what temperature settings they prefer. When consumers purchase these devices, they may not be aware that these IoT devices collect and/or monetize this data.

The world’s biggest Web companies, namely, Google, Facebook, LinkedIn, and Yahoo are currently involved in lawsuits where the issues in the lawsuits relate to consent and whether the Web companies have provided an explicit enough picture of what data is being collected and how the data is being used. To share some perspective on the severity of the legal issues relating to online data collection, more than 250 suits have been filed in the U.S. in the past couple of years against companies’ tracking of online activities, compared to just 10 in the year 2010. As IoT devices become more prevalent, legal issues relating to consent and disclosure of how the data is being collected, used, shared or otherwise monetized will certainly arise.

2. Data and Device Security is Paramount to the Viability of an IoT Solution

At the enterprise level, data security is paramount. IoT devices can be sources of network security breaches and as such, ensuring that IoT devices remain secure is key. When developing and deploying IoT solutions at the enterprise level, enterprises should conduct due diligence to prevent security breaches via the IoT deployment, but also ensure that even if an IoT device is compromised, access to more sensitive data within the network remains secure. Corporations retain confidential data about their customers and are responsible for having adequate safeguards in place to protect the data. Corporations may be liable for deploying IoT solutions that are easily compromised. As we have seen with the countless data breaches over the past couple of years, companies have a lot to lose, financially and otherwise.

3. Immediacy of Access to Data and Fog Computing

For many IoT solutions, timing is everything. Many IoT devices and environments are “latency sensitive,” such that actions need to be taken on the data being collected almost instantaneously. Relying on the “cloud” to process the collected data and generate actions will likely not be a solution for such IoT environments, in which the immediacy of access to data is important. “Fog computing” aims to bring the storage, processing and data intelligence closer to the IoT devices deployed in the physical world to reduce the latency that typically exists with traditional cloud-based solutions. Companies developing large scale IoT solutions should investigate architectures where most of the processing is done at the end of the network and closer to the physical IoT devices.

The Internet of Things has brought about new challenges and opportunities for technology companies. Privacy, security and immediacy of access to data are three important trends companies must consider going forward.

Article By Shabbi S. Kahn of Foley & Lardner LLP

© 2015 Foley & Lardner LLP

Cyber Liability: The Risks of Doing Business in a Digital World

Major security and data breaches have become more prevalent in the past decade. News headlines are dominated by stories of major corporations having networks hacked and subjecting employees’ and customers’ personal, financial and health information to cyber threats. Perhaps one of the following from 2014 will sound familiar:

  • January: Snapchat had the names and phone numbers of 4.5 million users compromised

  • February: Kickstarter had personal information from 5.6 million donors compromised

  • May: Ebay‘s database of 145 million customers was compromised.

  • September: iCloud had celebrity photostreams hacked

  • November: Sony Pictures had the highest profile hack of the year involving email accounts, video games and movie releases

While the news headlines make it is easy to think this is an issue for large, Fortune 500 companies, the risk is equally widespread, but much less publicized, for small businesses.

While the data breaches at small businesses do not garner the same attention as the data breaches occurring at Sony or iCloud, the impact to the organization and the liability the organization incurs are largely the same.

Although there are many studies available giving analytics on the types of data breaches that occur, those most common to small businesses can be described in three general categories: unintentional/miscellaneous errors, insider misuse and theft/loss.

Unintentional and miscellaneous errors are any mistake that compromises security by posting private data to a public site accidentally, sending information to the wrong recipients or failing to dispose of documents or assets securely. For example, have any of your employees ever accidentally sent an order (with account information) to the wrong email address?

Insider misuse is not a situation where an accidental error occurs. Rather, an employee or someone with access to the information intentionally accesses the data to use it for an unlawful purpose. For example, a disgruntled clerk in the billing department accesses customer information to obtain name, date of birth and bank account information in order to fraudulently establish a credit card in that customer’s name. Consider another scenario where a third party vendor, a benefits provider, for example, handles employee information. Once transmitted, the employer loses control over information security for that data. Savvy business owners will make sure their contracts with vendors make the vendor responsible for any data breach that occurs during the engagement and that it will indemnify the business for any actions arising from such a breach.

Data breaches also result from physical theft or loss of laptops, tablets, smart phones, USB drives or even printed documents. Consider a scenario where the Human Resource director is heading to a conference and her laptop is stolen at the airport. The laptop is not encrypted or pass coded and the thief can access all the employee files the director keeps on her computer.

In the past decade, laws have been aimed at narrowing the information that can initially be collected by businesses and with whom it can be shared, as well as mitigating the breach after it occurs.

Federal regulations like the Health Insurance Portability and Accountability Act (HIPAA) limit the collection and use of protected health information, and also has requirements for entities suffering a data breach, including customer notification and damage mitigation provisions, such as mandatory credit monitoring and fraud protection for affected customers.

The Personal Information Protect Act requires government agencies, corporations, universities, retail stores or other entities that handle nonpublic personal information to notify each Illinois resident who may be affected by a breach of data security. 815 ILCS 530/1 et seq. Personal information is defined as: an individual’s first name or first initial and last name in combination with any one or more of the following data elements, when either the name or the data elements are not encrypted or redacted:

  1. Social security number.

  2. Driver’s license number or State identification card number.

  3. Account number or credit card or debit card number, or an account number or credit card number in combination with any required security code, access code, or password that would permit access to an individual’s financial account.

The required notice to Illinois residents must include contact information for credit reporting agencies and the Federal Trade Commission, along with a statement that the individual can obtain information from those sources about fraud alerts and security freezes. 815 ILCS 530/10(a). If the data breached is data that the entity owns or licenses, the notice must be made without unreasonable delay. Id. If the data breached is data that the entity does not own or license, notice must be made immediately. 815 ILCS 530/10(b).

Failure to notify affected consumers is a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. 815 ILCS 530/20.

Technology is everywhere. Smart phones, tablets, laptops, the internet, online bill payments and the like have changed the way businesses operate. There is no denying that technology allows for efficient and effective commerce and communication. Unfortunately, the same technology that allows for faster and more efficient commerce and communication also subjects businesses to new forms of risk when it comes to data security.

There are risk management tools that all businesses should be aware of and using on a daily basis. Anti-virus software, passwords on all devices, frequent back up of data, encryption for sensitive information transmitted electronically are just a few.

What if a business owner takes all the steps necessary to reduce the risk of a data breach and it still occurs? There is a way to reduce damages and to shorten the recovery and restoration timeframes.

Cyber Liability insurance can protect businesses, large and small, from data breaches that result from malicious hacking or other non-malicious digital risks. This specific line of insurance was designed to insure consumers of technology services or products for liability and property losses that may result when a business engages in various electronic activities, such as selling on the internet or collecting data within its internal electronic network.

Most notably, cyber and privacy policies cover a business’ liability for data breaches in which the customer’s personal information (such as social security or credit card numbers) is exposed or stolen by a hacker.

As you might imagine, the cost of a data breach can be enormous. Costs arising from a data breach can include: forensic investigation, legal advice, costs associated with the mandatory notification of third parties, credit monitoring, public relations, losses to third parties, and the fines and penalties resulting from identity theft.

While most businesses are familiar with their commercial insurance policies providing general liability (CGL) coverage to protect the business from injury or property damage, most standard commercial line polices do not cover many of the cyber risks mentioned above. Furthermore, cyber and privacy insurance is often confused with technology errors and omissions (tech E&O) insurance. However, tech E&O coverage is intended to protect providers of technology products and services such as computer software and hardware manufacturers, website designers, and firms that store corporate data on an off-site basis. Cyber risks are more costly. The size and scope of the services a business provides will play a role in coverage needs and pricing, as will the number of customers, the presence on the internet, and the type of data collected and stored. Cyber Liability polices might include one or more of the following types of coverage:

  • Liability for security or privacy breaches (including the loss of confidential information by allowing or failing to prevent unauthorized access to computer systems).

  • The costs associated with a privacy breach, such as consumer notification, customer support and costs of providing credit monitoring services to affected customers.

  • Costs of data loss or destruction (such as restoring, updating or replacing business assets stored electronically).

  • Business interruption and extra expense related to a security or privacy breach.

  • Liability associated with libel, slander, copyright infringement, product disparagement or reputational damage to others when the allegations involve a business website, social media or print media.

  • Expenses related to cyber extortion or cyber terrorism.

Coverage for expenses related to regulatory compliance for billing errors, physician self-referral proceedings and Emergency Medical Treatment and Active Labor Act proceedings.

Article By Chrissie Peterson of Heyl, Royster, Voelker & Allen, P.C.
© 2015 Heyl, Royster, Voelker & Allen, P.C

While cyber liability insurance may not be right for all businesses, those that actively use technology to operate should consider the risks they would be exposed to if a data breach occurred. In addition, there are many different cyber policy exclusions and endorsements. Not all policies are created equal

While cyber liability insurance may not be right for all businesses, those that actively use technology to operate should consider the risks they would be exposed to if a data breach occurred. In addition, there are many different cyber policy exclusions and endorsements. Not all policies are created equal.

EU Official Calls for Invalidation of EU–U.S. Safe Harbor Pact

A European Court of Justice (ECJ) advocate general, Yves Bot, has called for the European Union–U.S. Safe Harbor Agreement to be invalidated due to concerns over U.S. surveillance practices (press release here, opinion here). The ECJ has discretion to reject the recommendation, but such opinions are generally followed. A final decision on the issue is expected to be issued late this year or next year.

The issue arises out of the claims of an Austrian law student, Max Schrems, who challenged Facebook’s compliance with EU data privacy laws. (The case is Schrems v. (Irish) Data Protection Commissioner, ECJ C-362/14.) He claims that the Safe Harbor Framework fails to guarantee “adequate” protection of EU citizen data in light of the U.S. National Security Agency’s (NSA) surveillance activities. Although the Irish data protection authority rejected his claim, he appealed and the case was referred to the ECJ.

The European Data Protection Directive prohibits data of EU citizens from being transferred to third countries unless the privacy protections of the third countries are deemed adequate to protect EU citizens’ data. The U.S. and EU signed the Safe Harbor Framework in 2000, which permits companies self-certify to the U.S. Department of Commerce (DOC) annually that they abide by certain privacy principles when transferring data outside the EU. Companies must agree to provide clear data privacy and collection notices and offer opt-out mechanisms for EU consumers.

In 2013, former NSA contractor Edward Snowden began revealing large-scale interception and collection of data about U.S. and foreign citizens from companies and government sources around the globe. The revelations, which continue, have alarmed officials around the world, and already prompted the European Commission to urge more stringent oversight of data security mechanisms. The European Parliament voted in March 2014 to withdraw recognition from the Safe Harbor Framework. Apparently in response to the concern, the Federal Trade Commission (FTC) has taken action against over two dozen companies for failing to maintain Safe Harbor certifications while advertising compliance with the Framework, and in some cases claiming compliance without ever certifying in the first place. For more, see here (FTC urged to investigate companies), here (FTC settles with 13 companies in August 2015), and here (FTC settles with 14 companies in July 2014).

Advocate General Bot does not appear to have been mollified by the U.S. efforts, however. He determined that “the law and practice of the United States allow the large-scale collection of the personal data of citizens of the [EU,] which is transferred under the [S]afe [H]arbor scheme, without those citizens benefiting from effective judicial protection.” He concluded that this amounted to interference in violation of the right to privacy guaranteed under EU law, and that, notwithstanding the European Commission’s approval of the Safe Harbor Framework, EU member states have the authority to take measures to suspend data transfers between their countries and the U.S.

While the legal basis of that opinion may be questioned, and larger political realities regarding the ability to negotiate agreements between the EU and the U.S. are at play, if followed by the ECJ, this opinion would make it extremely difficult for companies to offer websites and services in the EU. This holds true even for many EU companies, including those that may have cloud infrastructures that store or process data in U.S. data centers. It could prompt a new round of negotiations by the U.S. and European Commission to address increased concerns in the EU about surveillance.

Congressional action already underway may help release some tension, with the House Judiciary Committee unanimously approving legislation that would give EU consumers a judicial right of action in the U.S. for violations of their privacy. This legislation was a key requirement of the EU in an agreement in principle that would allow the EU and U.S. to exchange data between law enforcement agencies during criminal and terrorism investigations.

Although the specific outcome of this case will not be known for months, the implications for many businesses are clear: confusion and continued change in the realms of privacy and data security, and uncertainty about the legal rules of the game. Increased fragmentation across the EU may result, with a concomitant need to keep abreast of varying requirements in more countries. Change and lack of harmonization is surely the new normal now.

Article By Sheila A. Millar, Tracy P. Marshall & Nathan A. Cardon of Keller and Heckman LLP

© 2015 Keller and Heckman LLP

UK Government Launches Cybersecurity Service For Healthcare Organizations

The UK government has announced a new national service providing expert cybersecurity advice to entities within the National Health Service (NHS) and the UK’s broader healthcare system.  The project, called CareCERT (Care Computing Emergency Response Team), is aiming for a full go-live in January 2016.

Acording to recent press releases, CareCERT will:

  • “Provide incident response expertise for the management of cyber security incidents and threats across health and care system”;

  • “Broadcast potential cyber threats and necessary actions to take across the sector, to ensure cyber threats are safely dealt with”;

  • “Be a central source of security intelligence for health and care by working with cross government monitoring partners such as GovCertUK and CERT-UK”;

  • “Support the analysis of emerging and future threats through unique analysis tools and reporting”; and

  • “Be a trusted source of security best practice and guidance”.

CareCERT will be run by the Health and Social Care Information Centre (HSCIC).  The HSCIC is an important offshoot of the UK Department of Health, overseeing information assurance and patient privacy within the NHS as part of its broader role in setting health IT standards, assisting IT rollout throughout the NHS, and managing the release of healthcare statistics for the NHS.

CareCERT is expected to be a natural evolution of HSCIC’s existing function and expertise.  In particular, under the HSCIC/Department of Health’s data breach reporting policy (imposed on NHS bodies and their suppliers through contract), HSCIC is already one of the bodies notified and involved in the event of serious data breaches in the public healthcare sector.  The creation of CareCERT will enhance the HSCIC’s incident response capabilities, and will give NHS suppliers an increased opportunity to engage with HSCIC proactively (for guidance and threat alerts), rather than only after serious incidents take place.

Article by Mark Young & Philippe Bradley-Schmieg of Covington & Burling

© 2015 Covington & Burling LLP

DOD Issues Interim Rule Addressing New Requirements for Cyber Incidents and Cloud Computing Services

On August 26, 2015, the Department of Defense (DoD) issued an interim rule that imposes expanded obligations on defense contractors and subcontractors with regard to the protection of “covered defense information” and the reporting of cyber incidents occurring on unclassified information systems that contain such information.  Nearly three years in the making, this interim rule replaces the DoD’s prior Unclassified Controlled Technical Information (“UCTI”) Rule, imposing new baseline security standards and expanding the information that is subject to safeguarding and can trigger the reporting requirements.  Additionally, the interim rule implements policies and procedures for safeguarding data and reporting cyber incidents when contracting for cloud computing services.

Article By Susan B. Cassidy, Alejandro L. Sarria, Patrick Stanton & Catlin M. Meade of Covington & Burling LLP

© 2015 Covington & Burling LLP

Register for the Thomson Reuters Legal Executive Institute 5th Annual Law Firm CFO/CIO/COO Forum – NYC June 3

The 5th Annual Law Firm CFO/CIO/COO Forum
Data Privacy, Security & the Globalized Law Firm

Early Bird Rate Ends 5-14!

LawFirmCFO-CIO-COO-banner

Register Now

The Thomson Reuters Legal Executive Institute proudly presents the 5th Annual Law Firm CFO/CIO/COO Forum on June 3, 2015 in New York City at the Crowne Plaza Times Square Manhattan.

Our program will address the twin specters of data privacy and cyber security and their impact on US and international law firms in 2015. Delegates will hear from non-legal industry CISOs and world-renowned cyber security experts on emerging threats and innovative strategies affecting modern day law firm operations. Come prepared with questions and ideas as you engage both thought leaders and peers throughout a series of collaborative discussions.

This year’s program highlights include:

  • Enemies at the Gate: Responses to Data Security Threats Across Industries
  • Red Corner: The Rise of Corporate Espionage & the Problem with China
  • From Russia with Love: APT28 and the Soviet Spector
  • Preparing for a Client Security Audit: A Peer-to-Peer Workshop
  • A Briefing on Data Security Concerns in the Cloud and Tablet Technology
  • And more

Special Offers

Early Bird Discount: Save 15% when you enter CFO15 at checkout for individual registrations.  Expires 05.14.15

Group Discounts: Save 30% on when you register 2 or more delegates, please call 1-800-308-1700

Why You Should Attend

  • This is the only professional conference in existencedevoted to the unique cyber security concerns of law firms.
  • Stay Informed about the current threats to enterprise security at your firm from our elite faculty of thought leaders.
  • Network across industries as we welcome Chief Information Security Officers (CISOs) from numerous sectors to the Forum.
  • Gain Practical Takeaways for adoption at your firm or organization and build powerful connections with the premier thought leaders in the profession.
  • Be prepared to handle any future incidents at the completion of the Forum.
  • Did you know? Many law firm CIOs and security analysts believe that mobile technology and tablet technology will be the primary target of attacks in 2015. Our forum dispenses crucial advice on how to avoid falling prey to such forces.
  • Did you know? Many analysts believe international law firms will easily double their operation and insurance costs in 2015 as a result of increased data security attacks on US and Western businesses. Are you well-versed in the latest threats from Asia, Russia and beyond?
  • Did you know? The 2015 federal regulatory, legislative and enforcement landscape will force many organizations to thoroughly assess their current security infrastructure and comply with myriad new quality controls. Have you done your proper due diligence?

The Data Security and Breach Notification Act of 2015

Jackson Lewis P.C.

On March 25, 2015, the United States House of Representative, Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade approved draft legislation which would replace state data breach notification laws with a national standard.  This draft legislation comes on the heels of the President’s call for a national data breach notification law.  The proposed legislation is identified as the “Data Security and Breach Notification Act of 2015.”

The overview of the draft provides that “Data breaches are a growing problem as e-commerce evolves and Americans spend more of their time and conduct more of their activities online. Technology has empowered consumers to purchase goods and services on demand, but it has also empowered criminals to target businesses and steal a host of personal data. This costs consumers tens of billions of dollars each year, imposes all kinds of hassles, and can have a lasting impact on their credit.”  Like many existing state laws, the proposal would require companies to secure the personal data they collect and maintain about consumers and to provide notice to individuals in the event of a breach of security involving personal information.

The draft legislation contains several key provisions:

  • Companies would be required to implement and maintain reasonable security measures and practices to protect and secure personal information;

  • The definition of personal information is more expansive than most state breach notification laws, including home address, telephone number, mother’s maiden name, and date of birth as data elements;

  • Companies are not required to provide notice if there is no reasonable risk of identity theft, economic loss, economic harm, or financial harm;

  • Companies would be required to provide notice to affected individuals within 30 days after discovery of a breach;

  • The law would preempt all state data breach notification laws;

  • Enforcement would be by the Federal Trade Commission (FTC) or state attorneys general; and

  • No private right of action would be permitted.

The measure must now be formally introduced in the House of Representatives before further action can be taken.  Notably, similar measures introduced in the past in an effort to nationalize data breach response have all failed.  However, given the number of individuals affected by, or likely to be affected by, a data breach and the fact identity theft has topped the FTC’s ranking of consumer complaints for the 15th consecutive year, support for a national data breach notification law has never been stronger.

ARTICLE BY

Jason C. Gavejian
Jackson Lewis P.C.
Workplace Privacy Blog

New Data Security Bill Seeks Uniformity in Protection of Consumers’ Personal Information

Morgan, Lewis & Bockius LLP.

Last week, House lawmakers floated a bipartisan bill titled the Data Security and Breach Notification Act (the Bill). The Bill comes on the heels of legislation proposed by US President Barack Obama, which we recently discussed in a previous post. The Bill would require certain entities that collect and maintain consumers’ personal information to maintain reasonable data security measures in light of the applicable context, to promptly investigate a security breach, and to notify affected individuals of the breach in detail. In our Contract Corner series, we have examined contract provisions related to cybersecurity, including addressing a security incident if one occurs.

Some notable aspects of the Bill include the following:

  • Notification to individuals affected by a breach would generally be required within 30 days after a company has begun taking investigatory and corrective measures (rather than based on the date of the breach’s discovery).

  • Notification to the Federal Trade Commission (FTC) and the Secret Service or the Federal Bureau of Investigation would be required if the number of individuals whose personal information was (or there is a reasonable basis to conclude was) leaked exceeds 10,000.

  • To advance uniform and consistently applied standards throughout the United Sates, the Bill would preempt state data security and notification laws. However, the scope of preemption continues to be discussed, and certain entities would be excluded from the Bill’s requirements, including entities subject to existing data security regulatory regimes (e.g., entities covered by the Health Insurance Portability and Accountability Act).

  • Violations of the Bill would be enforced by the FTC or state attorneys general (and not by a private right of action).

ARTICLE BY

Michael L. Pillion
A. Benjamin Klaber
Morgan, Lewis & Bockius LLP

Taking Control of Cybersecurity: A Practical Guide for Officers and Directors

Foley and Lardner LLP

Major cybersecurity attacks of increased sophistication — and calculated to maximize the reputational and financial damage caused to the corporate targets — are now commonplace. These attacks have catapulted cybersecurity to a top priority for senior executives and board members.

To help these decision makers get their arms around cybersecurity issues, Foley Partners Chanley T. Howell, Michael R. Overly, and James R. Kalyvas have published a comprehensive white paper entitled: Taking Control of Cybersecurity — A Practical Guide for Officers and Directors.

The white paper describes very practical steps that officers and directors should ensure are in place or will be in place in their organizations to prevent or respond to data security attacks, and to mitigate the resulting legal and reputational risks from a cyber-attack. The authors provide a blueprint for managing information security and complying with the evolving standard of care. Checklists for each key element of cybersecurity compliance and a successful risk management program are included.

Excerpt From Taking Control of Cybersecurity: A Practical Guide for Officers and Directors

Sony, Target, Westinghouse, Home Depot, U.S. Steel, Neiman Marcus, and the National Security Agency (NSA). The security breaches suffered by these and many other organizations, including most recently the consolidated attacks on banks around the world, combined with an 80 percent increase in attacks in just the last 12 months, have catapulted cybersecurity to the top of the list of priorities and responsibilities for senior executives and board members.

The devastating effects that a security breach can have on an enterprise, coupled with the bright global spotlight on the issue, have forever removed responsibility for data security from the sole province of the IT department and CIO. While most in leadership positions today recognize the elevated importance of data security risks in their organization, few understand what action should be taken to address these risks. This white paper explains and demystifies cybersecurity for senior management and directors by identifying the steps enterprises must take to address, mitigate, and respond to the risks associated with data security.

Officers and Directors are Under a Legal Obligation to Involve Themselves in Information Security

The corporate laws of every state impose fiduciary obligations on all officers and directors. Courts will not second-guess decisions by officers and directors made in good faith with reasonable care and inquiry. To fulfill that obligation, officers and directors must assume an active role in establishing correct governance, management, and culture for addressing security in their organizations.

Download This White Paper

ARTICLE BY

Chanley T. Howell
James R. Kalyvas
Michael R. Overly
OF
Foley & Lardner LLP

Responding to the Anthem Cyber Attack

Proskauer Rose LLP, Law Firm

Anthem Inc. (Anthem), the nation’s second-largest health insurer, revealed late on Wednesday, February 4 that it was the victim of a significant cyber attack. According to Anthem, the attack exposed personal information of approximately 80 million individuals, including those insured by related Anthem companies.Anthem has reported that the exposed information includes member names, member health ID and Social Security numbers, dates of birth, addresses, telephone numbers, email addresses and employment information. The investigation of the massive data breach is ongoing, and media outlets have reported that class action suits have already been filed against Anthem in California and Alabama, claiming that lax Anthem security measures contributed to this incident.

Employers, multiemployer health plans, and others responsible for employee health benefit programs should take note that theHealth Insurance Portability and Accountability Act (HIPAA) and state data breach notification laws may hold them responsible for ensuring that certain notifications are made related to the incident. The nature of these obligations will depend on whether the benefits offered through Anthem are provided under an insurance policy, and so are considered to be “fully insured,” or whether the Anthem benefits are provided under a “self-insured” arrangement, where Anthem does not insure the benefits, but instead administers the benefits. The most significant legal obligations on the part of employers, multiemployer health plans, and others responsible for employee health benefit programs will apply to Anthem benefits that are self-insured.

Where notifications must be made, the notifications may be due to former and present employees and their dependents, government agencies, and the media.  Where HIPAA applies, the notifications will need to be made “without unreasonable delay” and in any event no later than 60 days after the employer or other responsible party becomes aware that the breach has affected its own health plan participants. Where state data breach laws apply, notifications generally must be made in the most expedient time possible and without unreasonable delay, subject to certain permitted delays. Some state laws impose outside timeframes as short as 30 days. Under the state laws, reporting obligations on the part of employers, multiemployer health plans, and others responsible for employee health benefit programs will generally turn on whether they, or Anthem, “own” the breached data. Since the state laws apply to breaches of data of their residents, regardless of the states in which the compromised entities and data owners are located, and since former employees and dependents could reside anywhere, a comprehensive state law analysis is required to determine the legal requirements arising from this data breach. Fortunately, depending on the circumstances, some (but not all) state data breach notification laws defer to HIPAA breach notification procedures, and do not require additional action where HIPAA applies and is followed.

As potentially affected parties wait for confirmation from Anthem as to whether any of their employees, former employees or their covered dependents has had their data compromised, we recommend that affected parties work with their legal counsel to determine what their responsibilities, if any, might be to respond to this incident. Among other things, for self-insured arrangements, HIPAA business associate agreements and other contracts with Anthem should be reviewed to assess how data breaches are addressed, whether data ownership has been addressed by contract, and whether indemnification provisions may apply. Consideration should also be given to promptly reaching out to Anthem to clarify the extent to which Anthem will be addressing notification responsibilities. Once parties are in a position to make required notifications, we also recommend that companies consult with legal counsel to review the notifications and the distribution plans for those notifications to assure that applicable legal requirements have been satisfied.

ARTICLE BY

Roger A. Cohen
Paul M Hamburger
Kristen J. Mathews
Ellen H Moskowitz
Richard J Zall
OF
Proskauer Rose LLP