United States: D.C. Circuit Holds Cyber-Theft Of Customers Medical Identifying Information Created Sufficient Increased Risk Of Harm To Establish Standing

Earlier this month, an appellate panel of the federal DC Circuit unanimously held that individuals affected by a healthcare insurer's data breach in 2014 could pursue claims against the insurer stemming from the cyberattack. In the process, the panel deepened a circuit split on the question of whether data breach victims have standing to pursue claims based solely on exposure of their sensitive personal information, while also adding significant risk of cyber-liability for companies that collect and store medical records of individuals.

In Attias v. CareFirst, Inc., the plaintiffs asserted claims on behalf of a purported class of one million customers of CareFirst, Inc. ("CareFirst"), a healthcare insurer in the Washington, DC metro area. In the 2014 cyberattack, hackers penetrated 22 computers and compromised the identifying health data of one million customers, including customer names, addresses, email addresses, subscriber ID numbers, and Social Security numbers. The plaintiffs did not allege that they had suffered any direct financial injury as a result of their identifying health data being exposed, but did allege they suffered an "increased risk of identity theft" as a result of CareFirst's alleged negligent conduct. The district court granted CareFirst's motion to dismiss, which asserted that the plaintiffs lacked standing to bring their alleged claims because they had not asserted either a present injury arising from the data breach or a "high enough likelihood of future injury."

On appeal, the DC Circuit held that the district court's view of standing was too narrow under the standard established by the Supreme Court in t Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). Spokeo held that, to satisfy the standing requirement of Article III of the Constitution, a plaintiff must allege and prove he or she suffered an "injury in fact" that is "fairly traceable" to a defendant's conduct, and that said injury is "likely to be redressed" by the relief sought. As applied in data breach cases, that standard obligates a plaintiff to show that his or her injury is "actual or imminent" rather than speculative. See Clapper v. Amnesty Int'l USA, 133 S. Ct. 1138 (2013). The district court had determined the plaintiffs' alleged "increased risk of identity theft" as a result of the breach was not sufficiently "actual or imminent" and thus could not meet the standing requirements. According to the district court, there was no actual or imminent exposure to a heightened risk of identity theft as a result of the 2014 cyberattack, or sufficient risk of an imminent future injury arising thereof. Because the plaintiffs' stolen information had not yet been used to harm them, the district court found they could not demonstrate "actual or imminent" harm at the pleading stage.

The DC Circuit disagreed, holding that although no injury had in fact occurred, it was sufficient that plaintiffs established either (1) their threatened injury arising from the data breach was impending with certainty or (2) CareFirst's conduct created a substantial risk that injury could occur as a result of the breach. According to the DC Circuit, a plaintiff may establish this latter prong – that a "substantial risk" that injury could occur – by showing the defendant's conduct created a "significant risk" or "substantial probability" of injury.

Under the DC Circuit's analysis, a plaintiff cannot establish that there is a substantial risk injury could occur when the unrealized injury is too attenuated from the defendant's alleged conduct. In data breach actions such as this one, whether the defendants' conduct creates a sufficient increased risk of harm depends upon the type of identifying data stolen. Because the hackers stole CareFirst customers' medical identifying information (including names, addresses, Social Security numbers and subscriber ID numbers), it was plausible that persons could use this information to commit identity theft. The victims of the CareFirst breach could plausibly allege that the "nature of the hack" and the "nature of the data" immediately created a substantial risk that they would suffer an injury from the theft, even if one had not yet occurred. Put another way, there was "no long sequence of uncertain contingencies" that needed to occur in order for the CareFirst victims to suffer harm resulting from the data breach. Given the nature of the medical records that were stolen as a result of the data breach, the DC Circuit noted it could presume that the hackers had the "intent and ability to use the [medical records] for ill."

The DC Circuit's opinion in CareFirst shows that the risk of liability for companies suffering data breaches will likely depend on the type of customer information they collect and store. The DC Circuit's holding rested on the particular mix of customer information stolen and the industry in which CareFirst operated (the healthcare industry). For example, in cases involving theft of payment card data, the risk of harm to consumers is non-existent, given that payment card customers do not pay for fraudulent transactions and no identity theft can result from only a credit card number. Medical records, however, contain sensitive personal information – including dates of birth and Social Security numbers – that serve as a starter kit for identity theft. The DC Circuit indicated that plaintiffs likely have standing to sue in cases where the data stolen includes social security numbers or this specific medical identifying information. Otherwise, it would be possible to distinguish CareFirst from cases arising from payment card data breaches. This clear distinction in the case law now imposes a heightened risk on companies that create and store medical records of their customers, as theft of this data creates a substantial risk of identity theft that exposes these companies to significant potential liability in the result of a data breach.

Recent case law among the circuits shows a distinct split in data breach actions concerning the issue of whether an increased risk of identity theft constitutes sufficient "actual or imminent" injury for Article III standing purposes. The DC Circuit's opinion in CareFirst joins the Sixth Circuit's opinion in Galaria v. Nationwide Mut. Ins. Co. the Seventh Circuit in Remijias v. Neiman Marcus Group LLC, and the Third Circuit in In re Horizon Healthcare Services Data Breach Litig. in holding that data breach litigants have standing to sue in certain circumstances even where they cannot allege they have suffered an actual injury in fact as a result of the breach. In contrast, the Second Circuit in Whalen v. Michaels Stores and the Fourth Circuit in Beck v. McDonald have both held that an increased risk of identity theft is not sufficient for a data breach litigant to establish Article III standing. This circuit split of course increases the likelihood that the Supreme Court will take up a similar case in the near future and resolve this conflict. Until then, the circuit split increases the chances that data breach litigants will forum shop and bring litigation in friendly jurisdictions where their claims are likely to survive at least the motion to dismiss stage.

Until this circuit split is resolved, companies that collect sensitive personal information – especially health care providers, insurers and other entities – should ensure that they have in place effective privacy programs that protect this data and reduce the probability of cyber theft. Because medical records and health insurance information likely creates a substantial risk of identity theft when stolen, health insurance companies, healthcare providers, and other companies that possess and store these types of data must take extra precautions to ensure this data is protected to the greatest extent possible.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.