Cybersecurity litigation is currently at a crossroads. Courts have struggled in these cases, coming out in wildly inconsistent ways about whether a data breach causes harm. Although the litigation landscape is uncertain, there are some near certainties about cybersecurity generally: There will be many data breaches, and they will be terrible and costly. We thus have seen the rise of cybersecurity insurance to address this emergent and troublesome risk vector.
I am delighted to be interviewing Kimberly Horn, who is the Global Focus Group Leader for Cyber Claims at Beazley. Kim has significant experience in data privacy and cyber security matters, including guiding insureds through immediate and comprehensive responses to data breaches and network intrusions. She also has extensive experience managing class action litigation, regulatory investigations, and PCI negotiations arising out of privacy breaches.
In the period of just a week, California passed a bold new privacy law — the California Consumer Privacy Act of 2018. This law was hurried through the legislative process to avoid a proposed ballot initiative with the same name. The ballot initiative was the creation of Alastair Mactaggart, a real estate developer who spent millions to bring the initiative to the ballot. Mactaggart indicated that he would withdraw the initiative if the legislature were to pass a similar law, and this is what prompted the rush to pass the new Act, as the deadline to withdraw the initiative was looming.
There are others who summarize the law extensively, so I will avoid duplicating those efforts. Instead, I will highlight a few aspects of the law that I find to be notable:
(1) The Act creates greater transparency about the personal information businesses collect, use, and share.
(2) The Act provides consumers with a right to opt out of the sale of personal information to third parties and it attempts to restrict penalizing people who exercise this right. Businesses can’t deny goods or services or charge different prices by discounting those who don’t opt out or provide a “different level or quality of goods or services to the consumer.” However, businesses can do these things if they are “reasonably related to the value provided to the consumer by the consumer’s data.” This is a potentially large exception depending upon how it is interpreted.
(3) The Act allows businesses to “offer financial incentives, including payments to consumers as compensation,” for collecting and selling their personal information. Financial incentive practices cannot be “unjust, unreasonable, coercive, or usurious in nature.” I wonder whether this provision will undercut the restriction on offering different pricing or levels of service in exchange for people allowing for the collection and sale of their information. Through some clever adjustments, businesses that were enticing consumers to allow the collection and sale of their personal data through different prices or discounts can now restructure these into “financial incentives.”
On Wednesday, the U.S. Court of Appeals for the 11th Circuit issued its long-awaited decision in LabMD’s challenge to an FTC enforcement action: LabMD, Inc. v. Federal Trade Commission (11th Cir. June 6, 2018). While there is some concern that the opinion will undermine the FTC’s power to enforce Section 5 for privacy and security issues, the opinion actually is quite narrow and is far from crippling.
While the LabMD opinion likely does have important implications for how the FTC will go about enforcing reasonable data security requirements, we think the opinion still allows the FTC to continue to build upon a coherent body of privacy and security complaints in an incremental way similar to how the common law develops. See Solove and Hartzog, The FTC and the New Common Law of Privacy, 114 Columbia Law Review 584 (2014).
I hope you enjoy my latest cartoon about data security — a twist on the angel on one shoulder and devil on the other. Humans are the weakest link for data security. Attempts to control people with surveillance or lots of technological restrictions often backfire. I believe that the most effective solution is to train people. It’s not perfect, but if training is done right, it can make a meaningful difference.