Tags: cyber | secure | information | private

The Changing Face of Responsibility for Keeping Your Information Private

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Monday, 08 Sep 2014 08:04 AM Current | Bio | Archive

Directors and officers of companies are facing increasing liability for cybersecurity losses, as lawyers have gotten the scent of a new money pot — one that might be covered not only by personal liability, but insurance as well.

To a plaintiff's lawyer, this is a wide-open game for making money. Lots of money.

It seems almost every day there are news stories relating the latest breach of some computer system. Hackers seemingly can crack with regularity even the biggest of computer systems of companies that most would believe were the most secure.

Everyone with a smartphone had the belief that using the cloud would provide privacy, but there seems to be plenty of female movie stars and swimsuit magazine cover models who are upset that their personal nude photographs wound up on the Internet.

This becomes all the more concerning when thinking about the particulars of everyone's personal life being loaded up on some computer system because of Obamacare and the new rules requiring banks to get detailed information on their customers.

Every business has potential liability exposure for losses that result from either outside hackers or inside employees stealing valuable data and other information that is intended to be kept safe, secure and private.

The potential losses can be massive. As an investor, this financial risk is hard to factor. It seems to me that there is little question that Wall Street is ignoring this risk in valuing stocks and bonds.

Cyber risks are new. There is little to no data as to the frequency of loss or the severity the loss incurs.

Up to now, corporations have relied on the fact that they had cyber coverage under their general liability insurance policy or other traditional lines of coverage.

This is not going to continue. Insurance companies are starting to exclude from liability coverage losses from disclosure of confidential or personal information.

Just a few things that can be problems are customers' credit card information, health information and financial information. Business records, tax returns, patents, trade secrets, customer lists, recipes and formulas and processing methods are also possible exposures that could result in catastrophic losses.

This gets all the more difficult since more and more businesses have been encouraged to outsource handling, processing and storage of data to third-party vendors. Even the cloud is on physical servers somewhere.

Cyber insurance coverage will be tougher to get. The actuaries who calculate premiums are in a tough spot since there is virtually no historical data to draw upon.

Then there is the problem that the insurance industry, meaning the entire global business, does not have the capacity to issue insurance coverage in the amounts that will be necessary. Not even close.

Unlike the government, which can claim sovereign immunity no matter how badly it screws up, directors and officers of companies have no such luxury.

Developing case law, new federal, state and foreign privacy and data statutes and new regulations place personal responsible for a company's cybersecurity practices and protocols on the directors and officers.

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Directors and officers of companies are facing increasing liability for cybersecurity losses, as lawyers have gotten the scent of a new money pot — one that might be covered not only by personal liability, but insurance as well.
cyber, secure, information, private
503
2014-04-08
Monday, 08 Sep 2014 08:04 AM
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