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The Connecticut Supreme Court’s forthcoming decision in an insurance coverage dispute over an incident that exposed sensitive information for 500,000 IBM Corp. employees could help shape data breach coverage litigation, as the court is likely to weigh in on what constitutes a “publication” that triggers coverage when data is lost.
The February 23, 2007 breach, disclosed in 2007, involved backup tapes falling out of a subcontractor’s vehicle while in transit. IBM had contracted with Total Recall Information Management, who had subcontracted with Ex Log Van. As reported previously
on this site, Michael A. Hamilton and Christopher J. DiIenno of Nelson
Levine de Luca & Hamilton LLC explain the January 2014 court opinion:
Approximately 130 tapes, which included employment-related data, including Social Security numbers, birthdates, and contact information were taken from the roadside and never recovered. In order to provide legally required notice of the incident to the approximately 500,000 past and present IBM employees affected, IBM incurred more than $6 million in expenses for a call center and one year of credit monitoring. Recall sought indemnification from Ex Log after entering into a negotiated settlement with IBM. Ex Log (and Recall as an additional insured) sought coverage under a CGL policy issued by its carrier.
The court addressed the issue of whether the insurer had a duty to pay the notification costs under the “personal injury” section of the policy, in particular, coverage for injury caused by “publication of material that…violates a person’s right to privacy.” Plaintiffs alleged that the loss of the computer tapes was publication of the information to the thief.
The court found no evidence in the record suggesting the information in the stolen tapes was ever accessed. IBM’s notification letter to the affected employees stated: “we have no indication that the personal information on the missing tapes, which are not the type that can be read by a personal computer, has been accessed or used for any improper purpose.”
Further, the court noted that none of the employees reported any financial (or other) losses as a result of the lost tapes. These facts provided additional support for the court to reason that the tapes were not accessed and therefore, there was no communication or disclosure of personal information.
So what will the Connecticut Supreme Court rule? We’ll have to stay
tuned, I guess, but I wouldn’t be surprised if the high court affirms.