Effective May 1, 2010, Alberta amended its Personal Information Protection Act (PIPA) to require breach reporting and notification requirements. U.S. businesses with a presence in Alberta should take note of the new law as it is a bit different than most of the state data breach notification laws in the United States. 

PIPA governs the collection, use and disclosure of personal information by businesses. Under the amendment to PIPA that adds the mandatory breach notification requirement, organizations that experience a breach will be required to report the incident to the Privacy Commissioner where there exists “a real risk of significant harm” to an individual. The Commissioner can, in turn, require the organization to notify the affected individuals.

Alberta’s Privacy Commissioner Frank Work commented on the new law:

Now an organization has to report significant losses to my Office. I can then require notification of affected individuals. Our experience has been that most businesses already notify people affected by losses and we encourage this. This is not necessarily a matter of making businesses liable for losses of information; it is about warning people so that they can take precautions. Hopefully it will make businesses more aware of the need for reasonable security measures.”

Of course, the challenge for multi-national companies will be to consider and coordinate the laws in various jurisdictions.

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.

The Supreme Court today issued its decision in City of Ontario, California v. Quon.  In a unanimous decision, the Court held that the search of Quon’s text messages, sent or received on his department issued pager, was reasonable and did not violate Quon’s Fourth Amendment rights. 

As set forth in the opinion, the Court did not resolve the parties disagreement over Quon’s privacy expectations, and instead disposed the case on the narrower grounds of the reasonableness of the search.  While the Court chose not to utilize the facts of this case to establish far-reaching premises that define the existence, and extent, of privacy expectations of employees using employer-provided communication devices, the Court did note that 

Employer policies concerning communications will of course shape the reasonable expectations of their employees, especially to the extent that such policies are clearly communicated.

Click here for a more in depth analysis of the decision. See our previous posts on Quon, here and here. 

All information from plaintiffs’ social networking profiles and postings that relate to their general emotions, feelings, and mental states must be produced in discovery when they allege severe emotional trauma and harassment against their employer, a federal court in Indiana has ruled. (EEOC v. Simply Storage Management LLC, S.D. Ind., No. 1:09-cv-1223, discovery order 5/11/10).

Social networking sites (SNS) such as Facebook and MySpace are fast becoming a hot topic in litigation as they may contain a wealth of potentially relevant information. In Simply Storage, the Equal Employment Opportunity Commission brought suit on behalf of plaintiffs and other similarly situated employees who claimed their employers were liable for a supervisor’s alleged sexual harassment. The EEOC requested a discovery conference because counsel for the parties disagreed as to whether the two named plaintiffs must produce the Internet social networking site profiles, including postings, pictures, blogs, messages, personal information, lists of “friends,” and of causes joined that the user has placed or created online.

The EEOC objected to production of all SNS content (and to similar deposition questioning). It argued the requests were overbroad, not relevant, unduly burdensome (because they improperly infringe on claimants’ privacy), and would harass and embarrass the claimants. Simply Storage countered that discovery of these matters was proper because certain EEOC discovery responses placed the emotional health of particular claimants at issue, beyond that typically encountered in “garden variety emotional distress claims.”

The court weighed ordering complete discovery of the plaintiffs’ Facebook and MySpace account information against limiting discovery to content specifically related to the alleged injury.  It found neither alternative satisfactory. According to the court, limiting discovery to posts that specifically referenced the mental issues and harassment alleged by the plaintiffs would be too narrow, while admitting the full profiles would include likely irrelevant—and potentially inflammatory—content. The court held, “It is reasonable to expect severe emotional or mental injury to manifest itself in some SNS content, and an examination of that content might reveal whether onset occurred, when, and the degree of distress. Further, information that evidences other stressors that could have produced the alleged emotional distress is also relevant.”

The court therefore defined the relevant scope of discovery as including “any profiles, postings, or messages (including status updates, wall comments, causes joined, groups joined, activity streams, blog entries) … that reveal, refer, or relate to any emotion, feeling, or mental state, as well as communications that reveal, refer, or relate to events that could reasonably be expected to produce a significant emotion, feeling, or mental state.”

The court rejected the EEOC’s assertion that broad discovery of this kind would violate the plaintiffs’ right to privacy and held that, while potentially relevant content may be embarrassing to the plaintiffs, “this is the inevitable result of alleging these sorts of injuries.” In addressing the argument that the profiles were “private” and password protected, the court held that these protections were insufficient to circumvent discovery. “[A] person’s expectation and intent that her communications be maintained as private is not a legitimate basis for shielding those communications from discovery.”

This case illustrates the importance of expanding the traditional thinking behind discoverable information to cover social media. Employers, upon advice of counsel, should consider requesting information of this nature. 

On June 10, 2010, the California Department of Public Health (CDPH) announced  issuing administrative penalties and fines totaling $675,000 against five hospitals in the state. CDPH cites the facilities’ failure to prevent unauthorized access to confidential patient medical information as required under new legislation (Section 1280.15 of California’s Health and Safety Code) (pdf) as the basis for the penalties and fines.

Relevant portions of Section 1280.15 of California’s Health and Safety Code provide:

A clinic, health facility, home health agency, or hospice . . . shall prevent unlawful or unauthorized access to, and use or disclosure of, patients’ medical information . . . The department, after investigation, may assess an administrative penalty for a violation of this section of up to twenty-five thousand dollars ($25,000) per patient whose medical information was unlawfully or without authorization accessed, used, or disclosed, and up to seventeen thousand five hundred dollars ($17,500) per subsequent occurrence of unlawful or unauthorized access, use, or disclosure of that patients’ medical information. For purposes of the investigation, the department shall consider the clinic’s, health facility’s, agency’s, or hospice’s history of compliance with this section and other related state and federal statutes and regulations, the extent to which the facility detected violations and took preventative action to immediately correct and prevent past violations from recurring, and factors outside its control that restricted the facility’s ability to comply with this section. The department shall have full discretion to consider all factors when determining the amount of an administrative penalty pursuant to this section.

CDPH Director Dr. Mark Horton commented, “medical privacy is a fundamental right and a critical component of quality medical care in California.” His position and the actions taken by the agency highlight the need for health care providers to do more to safeguard patient records. In most of these cases, according to the CDPH announcement, multiple hospital employees accessed confidential patient medical information without authority to do so.

However, California hospitals should not be the only entities concerned about exposure relating to unauthorized access to confidential personal information, nor is California’s Health and Safety Code the only statutory obligation to safeguard such information. Mandates to protect personal information are growing and apply to industries beyond healthcare and persons other than patients. In short, businesses in all states and industries should be reviewing, at a minimum:

  1. how they safeguard personal information, whether it be that of customers, patients, employees, or their dependents,
  2. who they permit to access personal information, and
  3. what their plan is in the event of unauthorized access or acquisition.

We’ve written about a number of these areas of concern:

Like most things, "an ounce of prevention is worth a pound of cure."

Connecticut Attorney General Richard Blumenthal has commenced an investigation in a second case involving potential HIPAA violations by a worker at Griffin Hospital. This follows the suit commenced against Health Net for HIPAA violations following a data breach. As reported by George Gombossy of ctwatchdog.com, this would be the second time a state attorney general has used the enforcement authority granted under the Health Information Technology for Economic and Clinical Health Act (HITECH).

The Attorney General’s press release states:

My office is investigating allegations that a radiologist formerly affiliated with Griffin Hospital improperly accessed the medical information of almost 1,000 of the hospital’s patients.

These charges, if true, are deeply disturbing. Patients rightly expect and demand that their medical information remain secure and confidential, viewed only by authorized individuals.

Unauthorized accessing of patient information is a violation of the federal HIPAA law that my office is empowered to enforce. I will seek strong and significant sanctions, if warranted by the facts.

Griffin Hospital rightly informed my office of this alleged data breach and is cooperating with our investigation.

Efforts are underway to help state Attorneys General become more actively involved in HIPAA enforcement. For example, the Department of Health and Human Services (HHS) has awarded a $1.7 million contract to train attorneys general on enforcing HIPAA and, specifically, to assist the Office of Civil Rights (an arm of HHS) “in conceptualizing and implementing a training curriculum for state attorneys general staff and others affected by the HIPAA Privacy and Security Rules.”

It is important that HIPAA-covered entities and business associates focus on compliance so when there is a data breach, they will be better positioned to respond to a state attorney general inquiry.

Have you noticed that negotiating that business associate agreement has gotten a lot more difficult? Many companies that serve health care providers and health plans, generally known as business associates, have noticed. These companies include software vendors, benefits brokers, cloud computing providers, data storage/destruction companies, and accountants, among others.

The clients of these companies are citing HIPAA, ARRA, HITECH, data breach notification requirements, and state law mandates as they demand stricter contract language and additional rights and protections, such as the right to audit the business associate and to be held harmless in the event of any data mishap. Business associates that took HIPAA lightly in 2003 and 2004, when the HIPAA regulations first became effective (2005 and 2006 for the security regulations), are playing catch-up.

When President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), “business associates” may not have expected the significant effects that law would have on their businesses. Chief among those effects are mainly due to four sentences in The Health Information Technology for Economic and Clinical Health (HITECH) Act (pdf), passed as part of ARRA, and which generally became effective on February 17, 2010 (the breach notification mandate became effective on September 23, 2009), one year after enactment:

  • “Sections 164.308, 164.310, 164.312, and 164.316 of title 45, Code of Federal Regulations, shall apply to a business associate of a covered entity in the same manner that such sections apply to the covered entity. The additional requirements of this title that relate to security and that are made applicable with respect to covered entities shall also be applicable to such a business associate and shall be incorporate[d] into the business associate agreement between the business associate and the covered entity.” ARRA Sec. 13401(a). This statement makes business associates directly subject to nearly all of the HIPAA security regulations, the HIPAA rules relating to electronic protected health information. Prior to the change, these obligations existed for business associates only as a matter of contract.
  • “A business associate of a covered entity that accesses, maintains, retains, modifies, records, stores, destroys, or otherwise holds, uses, or discloses unsecured protected health information shall, following the discovery of a breach of such information, notify the covered entity of such breach.” ARRA Sec. 13402(b). This statement creates a new obligation for business associates – report to covered entities breaches of unsecured protected health information.
  • “The additional requirements of this subtitle that relate to privacy and that are made applicable with respect to covered entities shall also be applicable to such a business associate and shall be incorporated into the business associate agreement between the business associate and the covered entity.” ARRA Sec. 13404(a). This statement makes business associates directly subject to nearly all of the HIPAA privacy regulations. Prior to the change, as with the security regulations, these obligations existed for business associates only as a matter of contract.

In response to these law changes, and in the absence of regulatory guidance, covered entities have been demanding modifications to existing business associate agreements or requesting new agreements. In both cases, covered entities are seeking greater assurances from their business associates concerning the handling of the covered entities’ protected health information.

On top of that, covered entities are weaving into business associate agreements and other agreements requirements under newly enacted state laws requiring protections for “personal information” in the hands of vendors (e.g., business associates) to curb identity theft. Given the cost and reputational harm that could come from a data breach, as well a growing enforcement activity, many covered entities are becoming more forceful in their negotiations, citing legal mandates and established company policies for their unwillingness to budge on many provisions, even those that go beyond statutory mandates.

What is a business associate to do? Here are some thoughts:

  1. Confirm your company is a business associate. (go to HHS HIPAA frequently asked questions and insert "business associate" for helpful guidance). In some cases, covered entities are blanketing all of their vendors with these agreements. If believe your company is not a business associate, raise it with your client. Of course, even if you avoid being considered a business associate, your customer/client still may demand written assurances under state law for the personal information you handle on its behalf.
  2. Become compliant. As noted above, the HIPAA privacy and security requirements are now directly applicable to business associates. While additional guidance is expected as to what this means precisely, there is enough existing guidance concerning covered entities for business associates to use to achieve compliance. Among other things, compliance means conducting a risk assessment, adopting a written set of policies and procedures concerning the safeguarding of protected health information, and training staff. Being compliant not only reduces risk, but in an environment of increasing attention to data privacy and security, compliance can be a competitive advantage.
  3. Review agreements carefully. Covered entities increasingly include contract provisions that provide the covered entity with greater protections than the law requires. To the extent possible, try to remove those provisions. In any event, it is important to know your obligations under these agreements; they can vary dramatically from covered entity to covered entity.
  4. Develop strategies for reviewing/complying with multiple contracts. Some business associates have many clients and, therefore, business associate agreements. Managing unique provisions multiple agreements can be daunting, although the ability to negotiate a uniform agreement across a client basis is increasingly unlikely. So, where possible, try to use similar provisions in all agreements and know ahead of time your approach to certain key provisions, such as handling data breaches.
  5. Understand the law. Even if you’ve mastered the determination of whether you are a business associate, the rules outlining your business’ obligations likely will be evolving under HIPAA over the next few years, particularly with the expected growth of electronic health records and the expansion of health care. The same is true of state laws concerning personal information. In many cases these laws might coexist peacefully, in other cases there will be conflict. You need to be aware of the conflicts and be prepared to act accordingly.

 

The Federal Trade Commission announced it is further delaying its enforcement of the “Red Flags” Rule through December 31, 2010. This move comes at the request of several Members of Congress who want to further consider legislation that would clarify who is subject to the Rule.

The delay follows the lawsuit (pdf) filed by the American Medical Association and others arguing that the Red Flags Rule should not apply to physicians.  As reported by amednews.com, the plaintiffs bolster their case by pointing to a 2009 federal court ruling (pdf) (American Bar Assn. v. Federal Trade Commission) exempting lawyers from the Rule. That ruling is now on appeal to the U.S. Court of Appeals for the D.C. Circuit

Legislation is pending in the United States House of Representatives that would exempt certain professions, including physicians, from the Red Flags Rule. H.R. 3763 passed the House unanimously in October 2009, but there has been no further movement in Congress on this issue.

The Rule was developed under the Fair and Accurate Credit Transactions Act, in which Congress directed the FTC and other agencies to develop regulations requiring “creditors” and “financial institutions” to address the risk of identity theft. The resulting Red Flags Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect, and respond to patterns, practices, or specific activities – known as “red flags” – that could indicate identity theft.

In its announcement, the FTC notes that as was the case with prior enforcement delays, this enforcement delay is limited to the Red Flags Rule and does not extend to the rule regarding address discrepancies applicable to users of consumer reports, or to the rule regarding changes of address applicable to card issuers.

Keystroke logging (or “keylogging”) is the noting (or logging) of the keys struck on a computer keyboard. Typically, this is done secretly, so  the keyboard user is unaware his activities are being monitored.

Several cases throughout the country have examined an employer’s use of keylogging.  Recently, the Criminal Court of the City of New York held in New York v. Klapper  that an employer who installed keylogging software on office computers and subsequently monitored an employee’s e-mail activity did not, absent some showing of contrary e-mail protections or acceptable use policies, access a computer “without authorization” in violation of New York law. 

In some of the strongest language against the premise of e-mail privacy to date, the Court stated in its April 28, 2010 opinion:

[t]he concept of internet privacy is a fallacy upon which no one should rely. It is today’s reality that a reasonable expectation of internet privacy is lost, upon your affirmative keystroke. 

The Court found that e-mails are more akin to a postcard than a letter, as they are less secure and can easily be viewed by a passerby. An employee who sends an e-mail from a work computer sends a communication that will travel through the employer’s central computer and will be commonly stored on the employer’s server even after it is received and read. Once stored on the server, the employer can easily scan or read all stored e-mails or data. The same holds true once the e-mail reaches its destination, as it travels through the Internet via an Internet service provider. Accordingly, this process diminishes an individual’s expectation of privacy in e-mail communications.

In contrast to the strong language from New York, the U.S. District Court for the Northern District of California ruled in Brahmana v. Lembo that a plaintiff could proceed to trial in his case alleging his employer committed an impermissible “interception” under the Electronic Communications Privacy Act (ECPA) by using keylogging to discover the password to his personal e-mail account, and using the logged password, accessed his personal e-mail.  However, another California District Court found in United States v. Ropp that because the keylogger recorded the keystroke information in transit between the keyboard and the CPU, the system transmitting the information did not affect interstate commerce as the required by the ECPA.  Further complicating the issue, a federal court in Ohio questioned Ropp, suggesting in Porter v. Havlicek that it read the statute too narrowly by requiring the communication to be traveling in interstate commerce as opposed to merely “affecting interstate commerce.”

Because of the numerous issues arising from the use of electronic communications, and the varying court opinions on these questions, employers would do well to reexamine their use of keystroke monitoring or logging technology on a regular basis.

An increasing number of employers are conducting background checks on applicants and employees and many are outsourcing this function. Employers that outsource their background check function will find themselves subject to the Fair Credit Reporting Act (FCRA), which contains a set of “technical” compliance requirements.

The lack of guidance by courts in the area of background checks has left employers wondering whether their “best practices” will pass muster if challenged. A recent decision from the Southern District of Ohio, Mandy Burghy v. Dayton Racquet Club, Inc. et al., 2010 U.S. Dist. LEXIS 17373 (S.D. Ohio Feb. 26, 2010), may provide some needed assistance.

By way of background, the FCRA imposes specific procedural requirements on employers that wish to obtain consumer or investigative consumer reports (“Reports”) from third-party consumer-reporting agencies regarding applicants or employees. These employers must:

  1. Obtain written consent from and provide written disclosure to applicants or employees, in a “clear and conspicuous” stand-alone document, that a Report has been requested. (Informally, the Federal Trade Commission (“FTC”) has stated these requirements can be satisfied through the use of a combined consent/disclosure form focused solely on the Report being obtained);
  2. Before taking any adverse action based on information contained in a Report, provide the individual with a copy of the Report and a copy of the FTC’s Summary of Rights and allow the individual reasonable period of time to dispute the accuracy of the disqualifying information (the “Pre-Adverse Action” requirement); and
  3. Issue an adverse-action letter when implementing any adverse action, such as a denial of employment or denial of promotion.

In Burghy, the Court first considered whether the employer provided a “clear and conspicuous” disclosure. It found this was satisfied because the employer put the disclosure “on the front side of a one page document,” “employed reasonably sized type,” used “bullet points to call attention to the disclosures,” and the plaintiff was aware that the employer was obtaining a Report.

Practice point – Infuse clarity and brevity into disclosures and exclude ancillary information.

The Court also considered the plaintiff’s assertion that the employer violated the “Pre-Adverse Action” requirement by implementing an adverse action prior to providing a copy of the Report and the FTC Summary of Rights. Specifically, the plaintiff claimed that the employer advised her of her termination at the same time as it provided her with the Report and Summary of Rights. The Court allowed this claim to proceed, denying the employer summary judgment.

Practice point – Eliminate factual disputes by carefully structuring conversations or correspondence pertaining to a Report so that the individual understands that no final decision (adverse or otherwise) has been made and the individual retains the right to contest the accuracy of the Report for a reasonable time. To the extent there is a conversation, having a checklist handy to delineate the process may be helpful.