Canada: Cyber Liability Blog 6: Cloud Computing

Last Updated: May 27 2016
Article by Laura Emmett

What do Jennifer Lawrence, Kate Upton, Hugh Grant and Scarlett Johansson have in common? They were all victims of cellphone cyber-attacks. With reoccurring headlines in the tabloids and on the news, it seems that every other week a different celebrity has fallen victim to the dreaded iCloud hack. Often, as a result, naked pictures or extremely personal information about the celebrity is leaked for the public to view. How each celebrity's iCloud account was hacked differs; however, the common denominator in each story is that the person decided to store their information virtually, subscribing to a service which they thought would house and protect their information. Many Canadians, including several businesses, have decided to opt for this type of storage because of the convenience and sense of security that one receives, believing they have taken measures to protect their private information. However, in opting to use this type of storage to house this personal information from their cell phones, computers and other software technology, many people aren't aware of: (1) how that information is being stored; (2) what type of security measures are in place; and (3) who can have access to that information.

This type of remote data storage, that so many individuals and companies rely upon, is called Cloud Computing. Cloud Computing can be defined as the practice of using a network of remote servers hosted on the Internet, to store, manage, and process data, rather than using a local server or a personal computer. Cloud Computing can also include other functions of the business, such as payment services and marketing and productivity tools.

What makes Cloud Computing so attractive to a business, especially a small to medium sized business, is that it can offer powerful software at very competitive prices. The software allows for a business to customize the services to fit their needs while at the same time allowing access from nearly any device that connects to the internet. With the numerous advantages that Cloud Computing can offer to a company, it only makes sense that the use of these services will continue to grow. In fact, Gartner Analysts has predicted that by 2017, the public cloud services market will exceed $244 billion.1

Although Cloud Computing can offers several benefits to a company in the operation of their business, it can also expose the company to significant risks, which already been highlighted above. The very purpose of Cloud Computing is to send your data to someone else for them to deal with it, and as such, it is being placed in the hands of someone outside of your business. By handing your data over to a third party, you immediately lose control over how the data will be stored and protected. This can lead to mishaps like what we have frequently seen with celebrity iCloud accounts being hacked.

A further concern is that most customers who have provided their information to a business are not aware that the company is using Cloud Computing services. A customer not having proper awareness of how their personal information is being stored could potentially result in an infringement of the Personal Information Protection and Electronic Documents Act2 ("PIPEDA") legislation, or the amending legislation, the Digital Privacy Act,3 ("DPA"). Under the PIPEDA, personal information is defined as any information about an identifiable individual. Further, section 4(1) of the PIPEDA states that the Act applies to every organization that collects, uses or discloses personal information in the course of commercial activities.4

In 2015, the DPA, amended the PIPEDA, to include further provisions, and specifically section 6.1 was introduced to address the issue of consent. This section states that for there to be valid consent from an individual in the collection of their personal information, it needs to be reasonable to expect that the individual would understand the nature, purpose and consequences of the collection, use or disclosure of the personal information to which they are consenting.5 Therefore, with the introduction of this section, companies need to ensure they are fulfilling their responsibilities in protecting customer confidential information. This is done by informing customers about how their information will be stored.

Businesses also need to consider whether the use of Cloud Computing services would impact the effectiveness of any Cyber Insurance policy that may be in place. Before implementing the use of Cloud Computing services, consideration should be given to your Cyber Insurance policy to ensure that protection is still provided when data is stored by a third party. Specifically, the language of the policy should be reviewed to understand how terms like "computer network" or "computer system" are defined in your policy. Additionally, businesses should also review any agreement with the Cloud Computing service provider to understand what exposure to liability the Cloud Computing service provider is willing to take on, and as such, what level of protection and security will be afforded to your personal data. It is more likely than not that Cloud Computing service providers will accept very little to no liability, leaving the bulk of the liability on the business, should anything happen. In such instances, the company should ensure that proper coverage is obtained under their own insurance policy.

1"Forecast: Public Cloud Services, Worldwide, 2011-2017, 3Q13 Update" (September 27, 2013) Gartner online:
2Personal Information Protection and Electronic Documents Act, SC 2000, c 5 [PIPEDA].
3Digital Privacy Act, SC 2015, c 32.
4PIPEDA, supra note 2 at s. 4(1).
5PIPEDA, supra note 2 at s. 6.1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Laura Emmett
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