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Neiman Marcus case a reminder to check your cyber coverage

Maria Korolov | Aug. 3, 2015
In a decision that should send major corporations to double-check their cyberinsurance, a federal appeals court ruled Monday that retail customers could go ahead and file a class-action lawsuit against Neiman Marcus in the wake of last year's data breach.

neiman marcus exterior
Credit: Massachusetts Office of Travel & Tourism

In a decision that should send major corporations to double-check their cyberinsurance, a federal appeals court ruled Monday that retail customers could go ahead and file a class-action lawsuit against Neiman Marcus in the wake of last year's data breach.

Previously, such cases were dismissed because the customers hadn't suffered any actual damages.

In the decision, the judges ruled that breach posed a substantial risk of harm to the customers.

"Why else would hackers break into a store's database and steal consumers' private information?" they said.

They also pointed to the fact that Neiman Marcus offered the victims a year of credit monitoring. "It is unlikely they did so because the risk is so ephemeral that it can safely be disregarded," the judges said in the ruling.

"If similar decisions follow suit, the likelihood is that the cost of a cyber breach for retailers will increase," said Tim Francis, enterprise cyber lead at Hartford, Conn.-based Travelers. "With this in mind, it is more important than ever that businesses ensure that they have cyber liability coverage, and, if they do, that they have adequate limits in place."

Cyberinsurance costs are also rising because of the price of business disruption, revenue loss, equipment damages, legal fees, public relations expenses and forensic analysis, as well as notification costs that are legally mandated in 47 states, he added.

"With this recent decision, defense costs can add up quickly and can exhaust the policy aggregate limit," said Christine Marciano, president at Cyber Data-Risk Managers.

That could leave a company without enough funds to pay out to plaintiffs.

"A company should consider purchasing a cyber insurance policy that offers defense costs outside of the policy limit in order to ensure the company can sustain the aftermath in such instances as Neiman's lawsuit reversal," she said.

However, the Neiman Marcus case is just one decision, cautioned attorney Scott Vernick, head of the data protection and privacy practice at Philadelphia-based Fox Rothschild LLP. Other courts may or may not follow, he said.

There also have been other cases that went in favor of the victims of a data breach, he said, though in most instances they were dismissed because the plaintiffs had not suffered actual damages, so had no standing to file suit.

This could be an opportunity for companies to double-check their policies and make sure they're covered for litigation, in addition to sending out notices to the victims and paying for credit protection.

In addition, he said, companies should check that their cyberinsurance is tailored to the needs of their particular business, since the level of potential risk is different for different industries.

 

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