TK Data Privacy and Cybersecurity Blog

“Cybersecurity Insurance: Trends and Traps”

 

 

Posted by: Brandon King and Rachelle (Shelley) Glazer

In the Cyber Roundtable hosted yesterday by Thompson & Knight, TK partner Rachelle (Shelley) Glazer spoke with Aarti Soni, McGriff’s Cyber Director, about industry trends and potential pitfalls for the unwary. Some highlights from the conversation:

Market Trends. Cyberattacks—and the notoriously high losses resulting therefrom—are on the rise. So too is the demand for coverage, as companies increasingly realize the necessity of cybersecurity insurance policies. The high losses, proliferation of attacks, and high demand for coverage have resulted in the hardening of the cybersecurity insurance market: more stringent underwriting, higher premiums, and reduced capacity for carriers. Companies looking to switch carriers or establish a new policy are well advised to note the state of the market and plan ahead.

Attention to Policy Language. The nature of cyberattacks and the costs necessary to remediate losses are constantly evolving. As a result, there may be gaps in coverage. For example, in responding to a breach, costs are often incurred in paying for legal fees, forensic experts, and public-relations management. But some policies might not include coverage for all three (and they should), or many limit coverage unnecessarily, and some policies may grant the carrier exclusive power in determining the relevant firms. Aarti and Shelley underscored the importance of naming your breach counsel, forensic experts, and public relations firm in the policy by endorsement at the placement stage. Policyholders should review their insurance agreements to confirm that coverage is available for alleged violations of BIPA (Biometric Information Privacy Act) and similar privacy laws regulating the use of biometric data. In addition, Shelley and Aarti discussed the importance of reviewing policy exclusions and negotiating for carve backs to those exclusions to obtain the desired coverage.

“Must Haves.” Shelley and Aarti also discussed some “must haves” for cybersecurity insurance, including third and first party coverage. First-party coverage will deal with the insured’s own losses resulting from a cyber attack (incident response, business interruption, data restoration, etc.), while third-party coverage concerns the insured’s liability to others resulting from a breach or cyber event (privacy, security, media liability). Given the complex nature of cyber breaches and the often sensitive nature of information at issue, companies should ensure their policies contain comprehensive coverage for both third and first party losses. Additionally, Aarti weighed on other important features, including coverage for bricking (when a device is rendered physically unusable after a cyberattack), reputational harm, and involuntary shutdown.

TK Trial Attorneys Brandon King and Shelley Glazer are available to review and analyze your cyber policies. TK’s cybersecurity counsel, including Justin Cohen, Mike Titens, Steve Stein, and Craig Carpenter, are available to help companies prepare for and respond to cyber incidents.

See the full conversation here.

Cybersecurity Litigation: Selected 2020 Decisions

 

Posted by: Brandon King and Rachelle (Shelley) Glazer

The past year has shed light on many litigation issues stemming from cybersecurity events. Several courts have clarified what it takes for someone whose data has been compromised to satisfy Article III’s injury-in-fact requirement. The US Supreme Court has decided to resolve a circuit split over whether the Computer Fraud and Abuse Act’s “exceed[] authorized access” language requires merely the “improper use” of computer systems, or more, like bypassing a password. Courts have also tackled claims of immunity arising from foreign cyberevents, addressed claims of privilege with respect to cyberattack reports and, most recently, interpreted federal regulations governing the protection of electronic health data. This post provides a brief summary of these litigation developments.

The Value of Lost Data and Standing to Sue – A Maryland federal district court held that customers of a hotel chain—the subject of a vast data-security breach that compromised the private data of its customers—satisfied Article III’s injury-in-fact requirement for several reasons. One of the more notable injuries, however, was “based on the loss of value of their personal information.” In doing so, the court recognized “the value that personal identifying information has in our increasingly digital economy.” This decision implicates one of the most common and complex issues in data-breach litigation—standing—and will provide guidance as courts grapple with advances in technology and the corresponding gap in precedent. See In re Marriott Int’l, Inc., Customer Data Sec. Breach Litig., 440 F. Supp. 3d 447 (D. Md. 2020).

Biometric Privacy– State biometric privacy laws—which dictate the conditions under which collectors of biometric data may obtain, retain, and use biometric data (for example, using a fingerprint scan at a vending machine)—continue to serve as fruitful ground for litigation. Two recent Seventh Circuit decisions analyzed whether plaintiffs satisfied Article III’s injury-in-fact requirement under Illinois’s Biometric Information Privacy Act, which requires private entities to, among other things, make certain disclosures, obtain informed consent before acquiring a consumer’s biometric data, as well as develop a publically available retention-and-destruction policy. In one decision, the court held that a private entity’s failure to obtain the requisite consent or provide the relevant disclosure before acquiring the plaintiff’s fingerprint constituted an injury-in-fact. In another decision, the Court held that an employer’s alleged failure to develop, publicly disclose, and comply with a data-retention schedule and guidelines for the permanent destruction of biometric data when the initial purpose for collection ended was sufficient to constitute injury. In doing so, the Seventh Circuit observed that “regulating the collection, storage, and use of biometrics is closely analogous to historical claims for invasion of privacy.” See Bryant v. Compass Group USA, Inc., 958 F.3d 617 (7th Cir. 2020) and Fox v. Dakkota Integrated Sys., LLC, 980 F.3d 1146 (7th Cir. 2020).

The Supreme Court and the Computer Fraud and Abuse Act – The CFAA imposes liability on persons who “exceed[] authorized access” to computer systems. But does the mere improper use of a computer satisfy that standard (like violating company policy by watching sports on a work computer), or does the phrase refer to violations of restrictions on access to information (like bypassing a password to obtain access). The First, Fifth, Seventh, and Eleventh Circuits apply the former, broader approach, while the Second, Fourth, and Ninth Circuits apply the narrower, access-based approach. In April 2020, the Supreme Court recently granted certiorari to resolve the split; in the interim, however, the Sixth Circuit adopted the narrower approach but, acknowledging the Supreme Court’s pending decision, noted that its interpretation “might not be the final word.” See Supreme Court Docket No. 19-783, Van Buren v. United States.

Foreign Actors and Subject-Matter Jurisdiction – WhatsApp and Facebook sued NSO Group, an Israeli mobile surveillance software company, alleging that NSO sent malware using WhatsApp’s system to over 1000 mobile devices to monitor users. NSO claimed the court lacked subject-matter jurisdiction “because the conduct giving rise to the complaint was performed by foreign sovereigns.” The Court rejected this argument and, in doing so, analyzed the “two relevant doctrines implicated by defendants’ argument: foreign official immunity and derivative sovereign immunity.” As to the former, because the defendants were sued in their individual capacities and the plaintiffs did not seek compensation from the Israeli government, the defendants did not “qualify as foreign officials under the content-based prong of the foreign official immunity test.” The court also rejected the latter argument, reasoning that “there [was] no compelling reason to extend derivative sovereign immunity to a foreign entity working on behalf of a foreign sovereign.” Although an appeal is pending, with the recent SolarWinds breach and allegations that agents affiliated with foreign governments were involved, the opinion will have impact going forward. See WhatsApp Inc. v. NSO Group Techs. Ltd., 472 F. Supp. 3d 649 (N.D. Cal. 2020).

Cyberattack Reports: Privileged or Not? A D.C. federal court recently held that a cybersecurity report commissioned by a law firm and generated by a consultant wasn’t protected by the work-product or attorney-client privileges. As to the work-product privilege, the court observed that the “fact that the Report was used for a range of non-litigation purposes reinforces the notion that it cannot be fairly described as prepared in anticipation of litigation.” The court rejected the attorney-client privilege, reasoning that the law firm’s “true objective was gleaning the consultant’s expertise in cybersecurity, not in ‘obtaining legal advice from its lawyer.’” See Wengui, v. Clark Hill, PLC, No. CV 19-3195 (JEB), 2021 WL 106417 (D.D.C. Jan. 12, 2021).

Electronic Protected Health Information – The Fifth Circuit recently vacated a civil penalty levied against MD Anderson Cancer Center stemming from the loss of electronic protected health information (ePHI) that was not encrypted. There, the unencrypted electronic devices of several MD Anderson employees were stolen or lost. The Government, citing violations of two federal regulations governing the encryption and disclosure of ePHI, imposed civil penalties of $4.3 million. The Fifth Circuit held the penalties were arbitrary and capricious and vacated in full. The regulations at issue were the “Encryption Rule,” which requires HIPAA-covered entities to implement “a mechanism to encrypt” ePHI, and the “Disclosure Rule,” which prohibits HIPAA-covered entities from disclosing ePHI to outside entities. The Court held that MD Anderson satisfied the Encryption Rule because it had implemented various “mechanism[s]” such as furnishing encryption devices to its employees; in doing so, the Court made clear that whether MD Anderson could have done more was not relevant—the only inquiry was whether MD Anderson implemented “a mechanism” (and it did). MD Anderson also complied with the Disclosure Rule, which defined disclosure to “mean[ ] the release, transfer, provision of access to, or divulging in any manner of information outside the entity holding the information.” The Court rejected the argument that HIPAA-covered entities violate this rule merely by “losing control” of ePHI; rather, as worded, the regulation required some affirmative act to violate the rule—but that wasn’t present in this case. See Univ. of Tex. M.D. Anderson Cancer Ctr. v. United States Dep’t of Health & Human Servs., No. 19-60226, 2021 WL 127819 (5th Cir. Jan. 14, 2021).

Data Privacy and Cybersecurity 2020 Year in Review

      

Posted by Michael C. Titens, Justin S. Cohen, and Stephen E. Stein

Cybersecurity and data privacy issues have both been overshadowed and strongly impacted by 2020’s dominant story – COVID-19. As employees shifted to working from home and Zoom and other video conference services became the new norm, new cybersecurity issues arose. As testing, contact tracing and return to work questions took the forefront privacy concerns correspondingly increased. Below are some of the most significant privacy and data security developments of 2020.

1. Federal Legislation: On December 4, 2020, the Internet of Things Cybersecurity Improvement Act of 2020 (“IOT Act”) was signed into law. The IOT Act establishes security standards for IoT devices owned or controlled by the Federal government. While limited to securing devices at the federal level, the IOT Act requirements are naturally expected to impact IOT devices in the commercial sector (i.e. a federally qualified device can be sold in the commercial sector). Under the IOT Act the National Institute of Standards and Technology is charged with developing standards and guidelines for the appropriate use and management of IOT devices for federal agencies (and to the extent practical will be consistent with best industry practices).

The defense bill signed by the President in December creates a national cyber director within the president's office. The director would be tasked with coordination of federal cybersecurity policies. The hope is that leadership at the executive level will help both government and private sector security defenses.

2. California Privacy Rights Act Enacted: As covered in our Blog Post [link] on November 3rd the State of California passed the California Privacy Rights Act, or “CPRA.” This Act broadens the scope of the previously implemented California Consumer Privacy Protection Act (“CCPA”) and creates a new agency (effective July 2023) to enforce privacy obligations. As with the CCPA, this Act is expected to directly affect many companies that do business in California as well as influence legislation in other states.

3. Solar Winds Attack: The IT management company SolarWinds was subject to a data security breach believed to have started in March of 2020 and not identified until December. The breach, widely believed to be carried out by Russia, has impacted a large number of Fortune 500 firms as well as the Treasury Department, Department of Homeland Security, National Nuclear Security Administration and others. As SolarWinds sent out periodic software updates this year, the updates included code that had already been hacked, allowing access to the IT systems of up to 18,000 SolarWinds customers.

4. FireEye Attack: In early December FireEye, a recognized leader in intelligence-led security-as-a-service, reported that it was attacked by a highly sophisticated threat actor which FireEye believes to have been a state-sponsored attack by a nation with top-tier offensive capabilities. Per FireEye, “Consistent with a nation-state cyber-espionage effort, the attacker primarily sought information related to certain government customers.” The hackers are also believed to have stolen FireEye’s “Red Team tools” – the hacking tools that FireEye uses when conducting penetration tests and attempting to access its clients’ systems. As with the SolarWinds attack, the direct target may have been government agencies but the attack potentially affected thousands of customers across the globe.

5. Ransomware: Ransomware continued to be a significant cyber threat in 2020. Victims included municipal and county governments, universities, and local school districts, as well as manufacturing, service and other businesses. On October 28, the FBI and other government agencies issued a special warning to hospitals and other healthcare providers. Ransomware attackers adapted their methods to increase the pressure on victims. In addition to blocking access to computer systems and encrypting data, modern ransomware attackers also attempt to encrypt data backups, making it far more difficult for a victim to recover its files without paying the ransom. Attackers also exfiltrate data from a victim’s network, including personal information of customers and employees, and then threaten to release the data publicly on “walls of shame” unless the ransom is paid.

Further increasing the risks for ransomware victims, U.S. government agencies issued advisories in October warning that ransomware payments to certain attackers could violate U.S. sanctions laws. A party making such a payment, as well as others involved in the process such as forensics firms and insurance providers, can face civil liability even if they did not know they were dealing with a sanctioned group or individual at the time the payment was made.

6. Schrems II and Transatlantic Data Flows: On July 16, 2020, Europe’s top court invalidated the EU-US Privacy Shield program, finding that it did not provide an “essential equivalence” with European data privacy laws (GDPR). The EU-US Privacy Shield program was a popular way for U.S. companies to comply with the restrictions on cross-border data transfers set forth in GDPR (Article 44). Since the U.S. does not have an adequacy decision under European privacy laws, the Privacy Shield Program was the most efficient way for many U.S.-based companies to lawfully move data to the U.S. from Europe under GDPR. This decision largely centered on European concerns for U.S. surveillance programs and the ability for private data to end up with public authorities. The Court found that “the requirements of US national security, public interest and law enforcement have primacy [over individual data rights], thus condoning interference with the fundamental rights of persons whose data are transferred to that third country.” The Swiss and Israeli governments issued similar rulings shortly after the European high court decision, adding to the importance of this decision.

These decisions have placed increased emphasis on the “standard contractual clauses” as a potential lawful means of transatlantic data flow; however, the Court cautioned against blindly applying the standard clauses without a case-by-case analysis of the risk of the transfer. In November, a draft of updated standard clauses was published with a final set of updated standard clauses expected in 2021.

In December, the Senate Committee on Commerce, Science, and Transportation held hearings on the invalidation of Privacy Shield and the future of transatlantic data flows highlighting a growing fear of data localization.

7. Texas Privacy Protection Advisory Council Issues Interim Report: In September of this year, the Texas Privacy Protection Advisory Council released is interim report to the 87th Legislature. The Council was created following an amendment to proposed consumer privacy bills in Texas with a goal of studying existing data privacy laws in Texas, other states, and relevant foreign jurisdictions and making recommendations to the members of the legislature on specific statutory changes regarding the privacy and protection of personal information deemed necessary based on the study. While the report does not ultimately propose specific statutory provisions, it does provide a framework for future Texas privacy legislation based on six general recommendations:
a. State agencies should adhere to privacy standards that are continually reviewed and updated;
b. Legislative proposals should consider a balance between consumer privacy concerns and business compliance;
c. Legislative proposals should consider the impact on highly regulated data (e.g., PHI and financial information) and complement existing federal laws;
d. Legislative proposals should be written broadly enough to allow for the adoption of new technology and business standards;
e. Legislative proposals should consider existing laws in Texas and in other states so as not to create conflict; and
f. Texans have a right to know how their personal information is being used.

8. Insurance Market Tightens: Cyber insurers are charging more for coverage and being more careful with their underwriting due to a sharp rise in the frequency and severity of ransomware claims. However, ransomware is not the only concern. Cyber losses have also been driven by social engineering attacks, specifically business email compromise. The sharp uptick in claims may even push some insurers out of the cyber market. Premium increases reportedly range from 5% to 15%, with certain instances of even greater increases. Ransom payment is only part of the claim expense. Other large costs include IT expenditures related to investigating, identifying and containing attacks, and then restoring systems. Business interruption claims are also making up an increasing amount of the expense for the downtime after the attacks. Underwriters have started to introduce specific ransomware question sets during the underwriting process. Policyholders who give answers satisfactory to underwriters may obtain lower premiums but cannot expect discounts in this insurance market. Given the expected increase in attacks for 2021, this tightening of the market is unlikely to lessen anytime soon.

RANSOMWARE GETS EVEN MORE COMPLICATED: Hospitals Become Prime Targets as Government Warnings Highlight Legal Risks of Paying Ransom

Posted by Michael Titens

Ransomware attackers are concentrating their efforts on hospitals and other health care providers according to a warning issued by the FBI and other government agencies on October 28.  Attackers know that prolonged computer shutdowns in hospitals can be catastrophic and that hospital administrators may have few viable alternatives to making a ransom payment, making hospitals desirable targets.  Numerous hospitals have already been hit, leading to postponed procedures and at least one patient death reported by the Washington Post. 

Ransomware is not new but attackers have adapted their methods to increase the pressure on victims.  In addition to blocking access to computer system and encrypting data, modern ransomware attackers also attempt to encrypt data backups, making it far more difficult for a victim to recover its files without paying the ransom.  Furthermore, researchers have found that in nearly half of all ransomware attacks, attackers exfiltrate data from a victim’s network, including personal information of customers and employees.  The attackers then threaten to release the data publicly on “walls of shame” unless the ransom is paid.  Delays in payment result in partial data releases and threats to release more.  As a result, even when a victim can rebuild its network and recover its files without agreeing to attacker demands, the threat of public data disclosure often compels the victim to pay the ransom.

Ransomware responders have adapted to this new environment.  In addition to restoring a victim’s network, some forensics firms and cyber insurance providers assist with ransom negotiations and, if necessary, facilitate ransom payments. With more cyber insurance policies providing coverage for ransom payments, cost is less of an impediment to payment.  And as ransom payments become more routine, attackers expand their criminal activities.

Counteracting this trend, and increasing the risks for ransomware victims, U.S. government agencies issued advisories last month warning that ransomware payments to certain attackers could violate U.S. sanctions laws.  The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued its advisory “to highlight the sanctions risks associated with ransomware payments related to malicious cyber-enabled activities.”  OFAC has already imposed sanctions on organizations and individuals located in Russia, North Korea, and Iran and plans to continue adding other cyber actors to its list of specially designated nationals.  Under U.S. sanctions law, making or facilitating payments, directly or indirectly, with specially designated nationals is prohibited.  A party making such a payment, as well as others involved in the process such as forensics firms and insurance providers, can be held civilly liable even if they did not know they were dealing with a sanctioned group or individual at the time the payment was made.

As part of its strategy to deter ransom payments, the government is also targeting other potential participants in a ransomware transaction.  The OFAC warning specifically identifies financial institutions, cyber insurance carriers, and incident response firms that facilitate ransom payments as potential violators of U.S. sanctions laws.  Furthermore, at the same time OFAC issued its warning, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued an advisory to banks and other financial intermediaries that they should file Suspicious Activity Reports and comply with related regulations whenever they participate in any aspect of a ransom transaction.  Not only ransomware victims, but also the firms they choose to assist them in responding to an attack, must now reevaluate the costs and benefits of making a ransom payment, particularly where the attacker’s identity is unknown or the attacker is suspected to have already been designated by OFAC for sanctions.

The new guidance bolsters law enforcement’s view that victims should promptly report cyber incidents to the proper authorities (typically the FBI or Secret Service) and should not make ransomware payments.  According to the OFAC advisory, “OFAC will also consider a company’s self-initiated, timely, and complete report of a ransomware attack to law enforcement to be a significant mitigating factor in determining an appropriate enforcement outcome if the situation is later determined to have a sanctions nexus.”

While we anticipate that victims will still give serious consideration to making ransom payments, reasonable compliance procedures of forensics firms and financial intermediaries, including a possible requirement to involve law enforcement, may complicate any response.  Furthermore, cyber insurance carriers may be reluctant to provide coverage for certain ransom payments.  We have even heard that some insurance carriers may attempt to deny coverage for notification, legal, and other expenses related to a ransomware attack perpetrated by a sanctioned group.

So what can a business do in light of these increasing costs and risks associated with ransomware?  Companies should take steps to minimize the likelihood and impact of any potential attack.  For example, phishing e-mails are one of the most common attack vectors for ransomware.  Network users should be trained to identify and avoid malicious e-mail and in particular, malicious e-mail attachments such as those masquerading as Google Docs or .pdf attachments.  Also, businesses should maintain off-line back-ups of their network data and should consider segmenting their networks to restrict the ability of an intruder to move laterally within the network.  Other suggestions can be found in the recent advisory from the Cybersecurity and Infrastructure Agency and in this update from our friends at Stroz Friedberg.

Ransomware remains a threat to businesses large and small.  Recent attacks in the healthcare industry illustrate the potentially dire consequences of a network disruption.  For advice and assistance preparing for, or responding to, a ransomware attack, please contact any member of the Thompson & Knight cybersecurity team.

California Adopts a New Privacy Rights Act

Posted by Stephen Stein

Proposition 24, the California Privacy Rights Act (or “CPRA”), was passed by California voters on November 3.

Both modifying and enhancing aspects of the California Consumer Privacy Protection Act (“CCPA”) which became effective January 1 of 2020, the CPRA provisions will go into effect on January 1, 2023.

Why a new Act passed so soon after CCPA? Proponents felt that in many respects CCPA did not go far enough toward protecting personal data.  Proponents successfully argued that the state should adopt privacy protections comparable to those found in the European General Data Protection Regulation (“GDPR”).

What’s New?  Key provisions of the CPRA include:

• New Enforcement Agency: CPRA creates the California Privacy Protection Agency (beginning July 2023) which will take over responsibility from the state attorney general for enforcement of privacy obligations. In theory, this will allow greater resources to be dedicated to privacy enforcement.
• Liability for Violations by Service Providers: Collectors of Data who share a resident’s data will be responsible for compliance by any service providers with whom they share data.
• CCPA Clarifications: CPRA would clarify some of the issues raised with CCPA, including, (i) confirming that loyalty and discount programs would not be prohibited under CPRA, (ii) extending the moratorium on B2B and employee data, and (iii) removing “devices” from the determination of the thresholds of when a business would be subject to CPRA.
• Sensitive Personal Information: Consistent with GDPR, sensitive personal information is now defined and subject to more rigorous security requirements.
• New Consumer Rights: Consumers will have the right to update personal information already collected by companies.

Why Should I Care?

• As with the CCPA, companies that collect data on California residents (including via a website accessible to a California resident) will be subject to the law.
• California has been the bellwether state for a number of laws in the past. California privacy law, including the CPRA, can be expected to influence other states considering privacy legislation.
• Texas is among those states considering consumer data privacy legislation (see the September 2020 Report of the Texas Privacy Protection Advisory Council here. While aiming to meet public expectations concerning data privacy, the Legislature is also likely to seek to avoid some of the costly results of the CCRA and the GDPR. Progress on these matters may, however, be delayed by limitations on the scope of what the Legislature will undertake in a session constrained by COVID-19.

Cyber Coverage Considerations

 

Posted by Shelley Glazer and Brandon King

Cyber attacks are on the rise; this is especially the case during the COVID-19 pandemic. And the stakes are high; Target’s 2013 data breach, for example, gave rise to $248 million in remediation expenses. Of course, Target’s breach isn’t an isolated incident, just ask Sony, Home Depot, Yahoo!, and the World Health Organization. See WHO reports fivefold increase in cyber attacks, urges vigilance, World Health Organization (“Since the start of the COVID-19 pandemic, WHO has seen a dramatic increase in the number of cyber attacks directed at its staff, and email scams targeting the public at large.”).

So, are you covered by insurance? CGL policies generally don’t cover damages arising from cyber attacks and related data breaches; those policies usually cover damage to tangible property, not intangible property, like electronic data. In fact, recent CGL policies contain exclusions for loss of or damage to electronic data. Business-interruption and E&O policies may provide coverage, and the same is true of commercial-crime policies. Of course, whether any particular policy provides coverage in the event of a cyber attack turns on the policy’s language. However, given the trend towards cyber-specific policies, coverage under traditional policies is becoming less common. See Jes Alexander, Anatomy of a Data Breach—What Cyber Policies Should Cover, 13 J. Tex. Ins. L. 5 (2015) (“Those companies that rely solely upon CGL or other general policies do so at great peril.”). Companies should, as a matter of prudence, engage counsel to ascertain whether and to what extent they are covered in the event of a data breach.

When evaluating a cyber-insurance policy, companies should pay particular attention to whether the policy’s coverage is first party, third party, or both. First-party coverage will deal with the insured’s own losses resulting from a cyber attack, while third-party coverage concerns the insured’s liability to others resulting from breach or cyber event. Given the complex nature of cyber breaches and the often sensitive nature of information at issue, companies should ensure their policies contain both coverage sections (and this is usually the case).

Additionally, many companies confident in the strength of their cybersecurity infrastructure might be unaware that an increasing number of cyber attacks are aimed at third-party vendors. For this reason, companies should engage in a thorough vetting of any particular vendor’s cybersecurity practices, consult with counsel to strength indemnity resulting from a vendor breach and, most importantly, ensure that both the company’s and the vendor’s insurance policies cover losses stemming from a cyber attack.

There are a variety of cyber-related coverages to choose from; some are broad, cyber-liability polices—which address harm resulting from cyber activities (e.g., unauthorized disclosure of private information), as well as cyber infringement, injury or damage to information systems, notification expenses, e-theft, and cyber extortion. Then there’s event-management or breach-remediation coverage, which may cover costs related to managing a data breach (sometimes including a breach of a cloud service or other third party storing your data), such as costs associated with providing notification to compromised individuals, restoring lost data, and hiring legal counsel, public-relations consultants and forensic investigators. Crime-specific policies are also helpful, as they provide coverage for a variety of theft-based cybercrimes that may not be covered by your cyber policy. And what about business-interruption losses caused by a hacker-driven network failure (which would probably not be covered in your typical business-interruption policy)? Consider network-interruption coverage, which covers losses stemming from disruption of business activities caused by cybercriminals; this is often the case with distributed denial-of-service (DDoS) attacks. In sum, there exist myriad coverage options for those looking to ensure protection in the event of a cyber attack.

The current increase in work-from-home practices poses even greater risks of cyber-related breaches. See Danny Palmer, Cybersecurity: Half of employees admit they are cutting corners when working from home, ZDNet, (May 28, 2020 6:41 PM). So, now is the time for companies to consult with their counsel to reevaluate existing policies to determine the extent of coverage arising from a cyber-related event. If they do not have coverage, companies should strongly consider acquiring a cyber-insurance policy.

Cyber Criminals Work From Home Too

   

Posted by Michael Titens and Vlad Markovic - IS Security Manager

Over the last few months, many of us have been adapting to new work environments featuring less reliable wifi, videoconference cameos by our children and pets, and more casual dress codes.  At the same time, cyber criminals have been adapting their methods to target us in our new environs.  Here are a few of the latest threats:

Videoconference Vulnerabilities.

• There has been an increase in phishing e-mails and social engineering attacks, especially related to Zoom and other videoconference credentials.  Beware of any email containing links and stating you missed your meeting, need to activate your account again, or that your web conferencing software is vulnerable. 
• Malicious software can be sent using fake web conferencing invitations.  The emails may appear to be coming from a potential client or other contact claiming to be available for a call via one of the popular videoconference services.  In many cases, the invitation will contain a malicious Excel file supposedly containing the sender’s schedule.
• Cyber criminals are also registering look-alike domains to phish for videoconference credentials. Recommended precautions include only joining meetings from known contact, that you are expecting, and scrutinizing the videoconference link in your invitation – for example, a Zoom link should send you to zoom.us not zoom-meeting [dot] org or any other “strange” site.

Business Email Compromise (BEC) Scams

BEC scams include altering wire transfer and direct deposit instructions and efforts to divert escrow or other payments.  Recently, BEC Scams have been incorporating COVID-19 into their fraudulent appeals.  Some examples to look out for include:

• Using COVID-19 as an excuse to request a fraudulent switch or rescheduling of payments or a change to other business or government plans
  • Fraudsters posing as clients requesting that all invoices be changed to a different bank account due to “Corona Virus audits”
  • Attempts to exploit federal government stimulus plans and payment options
  • Posing as a CEO asking to switch payments “due to the Coronavirus outbreak and quarantine processes and precautions.”
• Scammers using claims of positive COVID-19 cases in their area to start an “urgent” email conversation

If you receive a payment or other request that appears to be out of the ordinary, take additional steps (including a confirmation phone call to a person you know on a number you have used before) before making any payment.  More generally, it is a good time to review existing relationships that provide for payment or receipt of funds by wire transfer to ensure multi-factor authentication is in place, identify which party is responsible for wire transfer fraud, and clarify insurance coverage for misdirected funds.

Other Malicious Activity

We have seen a spike in emails with malicious attachments that are disguised as invoices, purchase contracts, wire confirmations, and other documents that one would be inclined to open. One example of this type of a threat was a cleverly obfuscated document that stated it was a wire confirmation. In reality it was a new variant of a crypto-locker that at the time was undetectable by most antivirus tools.

The Weakest Link

Our home networks are only as strong as the weakest link.  Potential attack vectors include ancillary devices, such as printers, and other devices (like routers) that still use the manufacturer’s default login (e.g., “admin”) and password.  To strengthen cyber defense of routers, use strong passwords and select WPA-2 encryption.  Also, disable UPnP (universal plug and play) and keep your firmware up to date (some routers can be set to allow for automatic firmware updates).

Other computers on your home network might also be the weakest link.  All family members should be reminded to follow sound practices and view with suspicion any unexpected emails, attachments, or links.  Also, all computers should be updated with the latest security patches to protect against newly-discovered vulnerabilities.

Based on reports from some large employers, a full-time return to the office may be weeks or months away for many of us.  Maintaining good security practices and remaining vigilant will help protect our computers and networks from being compromised.

Reducing Cyber Risks Posed by Vendors

 

Posted by Justin Cohen and Vlad Markovic - IS Security Manager

When we think about cybersecurity, we often focus on our own people and systems. However, our vendors play a critical part of cybersecurity given how often we share data and integrate our IT systems with others. The 2018 Ponemon statistics estimated that over 50% of organizations have experienced a data breach due to a vendor’s security shortcomings. Here are some recent examples of breaches caused by third parties:

-        Hanna Anderson (over 10,000 California customers affected due to alleged malware in Salesforce Commerce Cloud’s e-commerce platform)(2019)

-         Quest Diagnostics (11.9M records via American Medial Collection Agency)(2019)

-         Target (at least 41M customer payment card accounts accessed via HVAC vendor; $18.5M settlement)(2013)

-         US Customs and Border Protection (Lost 100,000 records via a subcontractor network)(2019)

-         FBI (Lost 3 terabytes of confidential information – including FBI investigation records, millions of department files, personal data, system credentials, and even internal communication records)(2019)

So what should we do first?

Ensure you have a risk assessment and mitigation plan in place for managing vendors. Some may categorize vendors by risk and develop specific policies, procedures, and technical measures to reduce cyber risks for categories of vendors.

Then what?

Ensure proper vetting to understand the risk posed by new and existing vendors. Such vetting can be done in-house through cybersecurity and data privacy questionnaires, or via legal counsel and/or other third parties that assess cyber risks posed by vendors. While initial vetting is critical, routine vendor audits are recommended to ensure that each continues complying with your company’s policies, processes, procedures, and technical measures deployed for purposes of safeguarding their data.

What about their contracts?

Like anything else, if it’s important, put it in writing. Ensure that each vendor contract specifically addresses and allocates the costs and risks associated with that engagement. Common contractual provisions include representations and warranties to abide by your company’s cyber and data privacy policies and procedures. Depending on the circumstances, a warranty regarding compliance with industry standards (e.g. SOC2 or PCI-DSS) with data security audit rights and certifications may be appropriate. Depending on the circumstances, you should also consider including prompt notice provisions when a breach involving your company’s data is suspected. You may also want to allocate the costs of a data breach investigation and remediation in the agreement to avoid unknowns if an incident occurs, including which party should be responsible for the fees and costs associated incident investigation and remediation. If this engagement poses a significant data privacy risk (e.g., your company’s most sensitive data is involved), you should consider requiring that a vendor maintain a certain level of cyber insurance that covers your costs should a breach investigation take place. Finally, specifying the procedures for handling a suspected data privacy or cyber breach in your vendor contracts can save valuable time when an incident occurs.

FDA Releases Warning on Cybersecurity Threat to Connected Medical Devices and Healthcare Networks

     

Posted by Timothy E. Hudson and Madeline Tansey

In a recent press announcement, the U.S. Food and Drug Administration (FDA) released a statement informing healthcare providers, patients, and medical device manufacturers about a set of cybersecurity vulnerabilities that could expose medical devices and hospital networks to serious risks.^[1] This set of vulnerabilities, referred to as “URGENT/11,” consists of a set of 11 network flaws that researchers from the enterprise security firm Armis discovered.^[2] Though the FDA has not yet received any reports of hackers exploiting these vulnerabilities, it has begun efforts to proactively protect the public from the threats URGENT/11 poses to the healthcare system.

            The problem dates back to the early 2000s, when software firms began implementing transmission control protocols and internet protocols (“TCP/IPs”), which are sets of rules and procedures that allow devices to connect to wireless networks. Around this time, Interpeak, a Swedish software firm, created its own TCP/IP network protocol called “IPnet” and sold it to a variety of customers that manage operating systems. These customers then incorporated the IPnet software into their operating systems, which enabled them to link medical devices to the internet and central device networks. Unfortunately, this integration occurred years before anyone discovered the flaws within IPnet that leave billions of medical devices susceptible to hacking.^[3]

            The implications to the healthcare system of IPnet’s vulnerabilities are much broader—and more severe—than originally thought. According to Armis researchers, URGENT/11 can enable remote users to take down firewall protections and control devices connected to the internet or internal networks.^[4] Medical devices on an operating system that use IPnet are consequently vulnerable to these attacks, including MRI machines, patient monitors, anesthesia machines, and infusion pumps. For example, Becton Dickinson, a major medical device manufacturer, found its Alaris infusion pump was potentially vulnerable to hacker exploitation because it used the IPnet software.^[5] Researchers were able to exploit the infusion pump’s vulnerabilities, which caused it to crash and become unresponsive. This experiment demonstrated the critical nature of the URGENT/11 vulnerabilities and the direct impact on patient safety.

Though IPnet is an old protocol, many medical devices that still use the IPnet software “are critical devices, which go under a much longer period of development and approvals than consumer devices, and have significantly longer life cycles once in use,” said Ben Seri, Vice President of research at Armis. To combat this issue, the FDA has taken steps to disseminate information about which operating systems are affected and has made recommendations to ensure patient safety. Thus far, the agency has identified one or more versions of the following operating systems as vulnerable: VxWorks (by Wind River); Operating System Embedded (by ENEA); INTEGRITY (by GreenHills); ThreadX (by Microsoft); ITRON (by TRON); and ZebOS (by IP Infusion).^[6]

The FDA encourages medical device manufacturers to continue monitoring, reporting, and remediating the cybersecurity vulnerabilities. Medical device end users should contact manufacturers to determine whether their devices are impacted and whether those manufacturers have designed software patches to prevent device exploitation. For example, Armis and Wind River (a manufacturer for software used in medical devices) have worked to develop system patches for VxWorks versions that were released subsequent to version 6.5, such as VxWorks 653 and VxWorks Cert Edition.^[7] Additionally, device users can contact device manufacturers for mitigation techniques, such as the installation of a firewall recommended by Becton Dickinson to block remote attempts to exploit its devices.^[8]

While the FDA, Armis, and the Department of Homeland Security seek to resolve this issue, the FDA will continue to focus on informing those in the healthcare sphere about URGENT/11. As one FDA spokesperson noted, “Awareness is key because without it, industry cannot begin their risk assessment and mitigation activities.”

 

[1]See U.S. Food & Drug Admin., FDA informs patients, providers and manufacturers about potential cybersecurity vulnerabilities for connected medical devices and health care networks that use certain communication software (Oct. 1, 2019).

[2]Lily Hay Newman, Decades-Old Code Is Putting Millions of Critical Devices at Risk (Oct. 1, 2019).

[3]See Dennis Fisher, URGENT/11 flaws now affect broader range of medical, network devices (Oct. 3, 2019).

[4]See Armis, UPDATE: URGENT/11 affects additional RTOSs – Highlights Risks on Medical Devices (last visited Oct. 8, 2019).

[5]Fisher, supra.

[6]U.S. Food & Drug Admin., supra.

[7]Armis, supra.

[8]Newman, supra.

Protect Yourself From Wire Transfer Fraud

Posted by Justin S. Cohen

Cyber criminals are targeting U.S. companies on a daily basis—many seeking to steal funds through fraudulent funds transfers. While the hackers’ methods are technically sophisticated, the plan is simple: a hacker takes control of a business email account, learns how the company moves money (such as through wire transfers), then sends an email to initiate a fraudulent transfer. Trend Micro reported that the average business email compromise (“BEC”) attack in 2016 cost the victim approximately $140,000. The FBI reported that BEC scams accounted for more than $12.5 billion in losses for U.S. companies in 2018, exceeding all expectations. We here at Thompson & Knight have seen an uptick in these attacks and their sophistication and have some suggestions on how companies can protect themselves.

The Problem: Business Email Compromise

Cyber criminals use BECs to steal from companies using fraudulent funds transfers, such as by changing direct deposit instructions, wire transfer instructions, or requesting business checks. A BEC begins with hackers gaining full control of a person’s email account so they can read that person’s emails, delete emails, re-direct emails using rules, and send emails as if they were that person. The hackers focus on the email accounts of C-suite executives, controllers, and those involved in funds transfers (e.g., direct deposit instructions, wire transfers, check writing). The identities of the right people can usually be deduced from a few LinkedIn searches. Hackers track out-of-office message and social media to determine when executives may be away from the office.

Once hackers gain control over a particular email account, they will study the company’s procedures and email traffic, sometimes for months. After learning about the company and how it handles wire transfer requests, they will begin their attack. Typically, they will write emails from the executive’s account requesting rush wire transfers to offshore accounts. Most are careful to make requests that will be acted upon quickly without raising too much suspicion (e.g., by crafting the email with a sense of urgency). These criminals often start small and then increase their activity and the wire transfer amounts until someone spots the theft. Some of these attacks can go on for months. Many target a one-month window to avoid detection.

We have also seen schemes where criminals impersonate suppliers or business partners and send new wire transfer instructions for upcoming payments. In other cases, criminals impersonate employees and send emails requesting changes to payroll direct-deposit instructions. Such criminals may also watch emails during the run-up to a merger or acquisition, then send fraudulent wire transfer instructions near the closing.

Compounding the problem is that when a BEC occurs, (1) the funds are rarely recoverable and (2) many crime and cyber insurance policies do not cover these sorts of losses.

The Solution: Be Aware and Implement Layered Security

Here are a few suggestions to protect your company from these threats:

• Update your funds transfer policies to ensure that there are non-email confirmations/multi-factor authentication to confirm wiring/payment instructions for certain incoming and outgoing funds transfers. This can be as simple as requiring a phone call or video chat between people who know one another. Include a plan for handling suspicious funds transfer instructions.

• Meet with your financial institutions to ensure everyone has a clear understanding of the protocols in place to handle wire transfers. If the protocol is simply “wire based on email instructions” the financial institution typically will claim no liability.

• Review cyber insurance policies to ensure that these types of criminal events are covered, including coverage for the stolen funds.

• Implement periodic cybersecurity training for executives and employees, especially those involved in funds transfers. Such training should include periodic test “phishing” emails from your IT department or a security vendor so people become accustomed to spotting suspicious emails.

• Use multi-factor authentication for email accounts, especially email accounts like Office 365 that are accessible via the Internet.

Guarding against wire transfer fraud through business email compromise requires a layered approach. Companies should also prepare for a possible incident and ensure that their cybersecurity policy covers not only the cost of responding to an incident, but also the stolen funds.