Connecticut Business Litigation Blog : Connecticut Business Lawyer & Attorney : N. Kane Bennett : Raymond & Bennett Law Firm : Hartford, Middletown, Glastonbury

The National Cyber Security Alliance recently released a new study with some startling numbers concerning small businesses and the threat of data loss, security breach, or cyber attack.  Some of the key numbers obtained from polling small business owners include:

• 65% store customer information on computer systems
• 43% store financial records
• 33% store credit card information
• 86% do not have anyone focused on system security
• 11% of owners never check their computer security systems.
• 75% use the internet to communicate with customers
• 28% have formal internet security policies

What do these numbers suggest? Deborah Cohen, who covers small business for Reuters.com, published an article following release of the study and “confirmed that small businesses are among the most vulnerable to Internet crime. . .” She quoted Michael Kaiser, executive director of the National Cyber Security Alliance, who noted that “small businesses are pretty robust targets” for cyber attacks citing the lack of Internet protocol and employee training. Cohen’s article also offers some tips from Kaiser for small businesses to help confront cyber attacks.  

If you are looking for some guidance or help with cyber security, read here for some of my earlier posts.  If you are looking for a do-it-yourself placer to start, try the U.S. Chamber of Commerce.  The Chamber offers a great resource entitled“Common Sense Guide to Cyber Security for Small Businesses.” It’s a 12 step plan to increase cyber security. Here are some highlights:

·         Use strong passwords and change them regularly

·         Watch for strange email attachments

·         Install computer security software and network security

·         Keep software updated

·         Limit access to sensitive and confidential data

·         Establish and follow security plan

·         Maintain insurance coverage

The threat of data loss or security breach is not going away, but will only increase. Lawsuits concerning data loss and security breach are more frequent. Business owners need to stay on top of the threat by implementing a sound data loss and privacy plan. There is no one size fits all approach and every business will have its own risk exposures. If you are a business owner, consider having your business evaluated for risks of cyber attack or data loss. 

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On Monday,  I attended the Connecticut Privacy Forum hosted by Travelers.  This Forum was a well attended inaugural meeting of privacy and data security professionals.  I came away from the meeting very impressed with the panel of speakers and topics on the agenda.  I also came away from the meeting as convinced as ever that data loss and security breaches pose a significant risk for nearly all businesses that use computers. 

In one of my earlier posts,  I touched on some of the risks involved for businesses related to data loss and security breaches.  I also offered some potential solutions.  At the Privacy Forum, data loss statistics were presented by the speakers and confirmed that these risks are very real for businesses.  Here is a sample of some of the statistics from 2008 alone:

• 80 million records were compromised
• 580 data loss or breach incidents were reported
• $202 per record was the average cost to business for loss or breach 
• 47% of the incidents involved corporations or businesses
• 33% involved compromised social security numbers 

The speakers also offered some of the solutions for businesses in terms of risk management and planning.  The seminar further included a detailed overview of federal and state laws covering privacy rights and data security.   You can access the presentation materials at ctprivacy.com 

Overall, this was a great event concerning a topic that will continue to be relevant to business litigation in the coming years.  Congratulations to the organizers, David Baker and Peter Bernstein, from Travelers on a well run event!

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Every business in Connecticut, big or small, faces significant financial consequences for data loss or a breach of security.  As I noted in a business tips post on this blog, implementing a strong data loss and privacy policy is critical for preventing a loss or mitigating its effects and damages.  Of course, once you have a policy or procedure in place, your business could face a lawsuit for negligence for violation of these same policies and procedures.   To add extra protection against the devastating costs of data loss or a security breach, businesses should also consider insurance coverage.

Lawsuits over data loss and security breaches are becoming more common.  Obtaining insurance to cover losses from data loss can potentially save your business.  Business litigation attorneys bringing lawsuits over data losses often include negligence as one of the grounds or theories of recovery in these cases.  Take for example, the recent class action lawsuit for data loss filed against Aetna in Federal Court in Pennsylvania.  The lead theory of recovery in the complaint against Aetna is negligence.   

There may be many reasons why attorneys pursue negligence as a theory of recovery in these security and privacy cases.  However, pursuing a negligence theory increases the possibility of triggering the breaching company's insurance coverage for data loss, if the company has a policy.  If a business has insurance coverage that applies to the allegations in the complaint, the insurance company typically will also provide a legal defense to the claim.   Legal costs alone could be enough to sink a business, let alone the damages.   

When considering the cost of a data loss insurance policy, a business owner should likewise consider the cost to the business of a data breach.  How can you estimate the cost?  One way to estimate the cost is to use a data loss calculator.  You might also estimate your data loss costs by referencing this 2009 Ponemon Institute benchmark study estimating costs at $202 per page and rising. 

The price of an insurance policy may be cost effective when you consider the potential devastating financial impact of a major data loss or security breach.  In addition, if a business has a strong data loss policy and procedure in place, the cost of insurance should be lower.   Although cyber liability insurance has been available for over ten years, more of these insurance policies are being offered at better prices today.  Here are some links to major insurance companies offering insurance policies for data loss, cyber liability, and technology errors. 

Technology 404 by Darwin.

CyberChoice by The Hartford

 CyberSecurity by Chubb

ACE DigitTech

OneBeacon @vantage

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As part of this Blog, I am going to regularly post technology tips for any Connecticut business to manage risks and avoid lawsuits. These tips will be based on a presentation I did for the Hartford Business Journal's Etechnology Summit concerning technology bombs that can sink a business.

Here's todays tip for Connecticut businesses to avoid financial loss as a result of datal loss and security breaches.

Implement a Data Loss Policy and Solution

Any business that stores third party information or personal indentifiers (credit card information, social security numbers) on its computer systems faces potential exposure under a host of privacy laws.  For a good resource on privacy laws go to the Privacy Law Blog by Proskauer Rose LLP.  For an example of a new privacy law in Connecticut, consider the"Act Concerning the Confidentiality of Social Security Numbers."  Connecticut's Unfair Trade Practices Act could also be implicated in a data loss case.

Data loss or a security breach can cause a huge financial problem, bad public realtions, and signficant down time.  Consider the recent case of TJX reported on by Sheri Qaulters for the National Law Journal.  Discount retailer TJX had a data breach involving exposure of 45 million credit and debit cards.   TJX entered into various settlements including payment of $9.75 million to 41 states; $30 to every consumer who used a credit or debit card; and an undisclosed settlement with three banks. Ouch.

TJX is an extreme example, but data loss can sink a small to medium sized business.  How can a business mimize its exposure to lawsuits from data loss or security breach?

Implement a data loss policy and solution for your business.   There is no one size fits all policy and solution and every business will have different needs.  If you already have a policy, you should have it reviewed regularly for changes in the law.  If you do not have a policy in place, you need to start somewhere.  For "do it yourselfers" there is the Federal Trade Commision's Guide for Business and Protecting Personal Information.  The FTC's guide is a 5 step plan from identifying your risk exposure to implementing procedures. 

 In addition  to implementing policies, any business with a significant risk exposure for data loss (i.e. medical practice, retailers, e commerce) should consider purchasing a cyber liability insurance policy.  These policies are now more afforadable and many insurers such as The Hartford are now actively underwriting polices to cover first and third party data loss claims and providing ongoing resources and information.  

The bottom line is, a business cannot afford to take the risk of ignoring data loss and security breach exposure.  Do not wait for the first breach or lawsuit. 

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