As companies struggle with the risks and exposures related to data breaches, insurance can be an important part of an overall risk management strategy – so long as it is the right insurance.

Insurance carriers are offering products that purport to address this type of risk. Such insurance can be particularly important to businesses for which the handling of personal information or protected health information, such as some HIPAA “business associates,” is their lifeblood. However, as an ongoing litigation in a Utah federal district court makes clear, it is critical for businesses to be cautious and thorough when assessing insurance coverage, if only to avoid litigation about the scope of the coverage.

Court filings show that Perpetual Storage, a data storage company, had purchased certain insurance coverage through Colorado Casualty Insurance. One of Perpetual’s clients, University of Utah Hospitals and Clinics, stores significant amounts of its data with Perpetual, including personal information and protected health information. The University experienced a data breach on June 1, 2008, when storage disks were stolen from the car of a Perpetual employee who had picked up the disks from the University. The University claims the breach affected 1.7 million people. Claims expenses totaling approximately $3,354,753 were incurred in the course of responding to the breach. The specific costs alleged are $2,483,057 for credit monitoring expenses, $646,149 in printing and mailing costs, $81,389 in phone bank costs, and $144,158 in additional miscellaneous costs.

Naturally, the University is looking to Perpetual to reimburse it for these costs. In turn, Perpetual is looking to its insurance carrier, Colorado Casualty, to back it up. The insurer, however, has denied coverage. Colorado Casualty seems to be asserting that the claims do not constitute certain “bodily damages” or “property damages” as those terms are defined in the applicable policy. The insurer also claims that a number of policy exclusions support its decision to deny coverage.
At the same time, the University is seeking in its lawsuit to bring its insurance broker and adviser into the litigation, alleging they were "careless, negligent, and made various negligent misrepresentations about Perpetual’s insurance coverage from Colorado Casualty."

A ruling in favor of Colorado Casualty likely would make it more difficult to seek reimbursement under commercial liability policies in connection with data breaches. Such a ruling also should be a wake-up call to businesses relying on their current commercial liability policies to deal with data breach issues.

The moral of the story for businesses – review your coverage with your insurance brokers or other insurance advisers to ensure appropriate coverage.

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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.