United States: The United States Of Data Breach Notification

New statutes in South Dakota and Alabama complete a national mosaic

The absence of comprehensive federal legislation on data breach notification has led to the development of a patchwork of state laws to ensure that individuals receive timely notification of data breaches that might impact their personal data. On March 21, 2018, and March 27, 2018, South Dakota and Alabama became the final two states to pass data breach notification statutes of their own. With those efforts complete, all 50 states (and some U.S. territories) have now enacted data breach notification statutes, making this country truly a "united states" of data breach notification. What follows are some of the most pertinent provisions of the newly enacted South Dakota and Alabama statutes.

The new South Dakota statute – SB62

On Wednesday, March 21, 2018, South Dakota Governor Dennis Daugaard signed into law the nation's 49th state data breach notification statute. This follows the unanimous vote of the South Dakota legislature to approve the language of Senate Bill 62 (SB62). SB62 will go into effect on July 1, 2018.

SB62 shares a number of provisions found in other data breach notification statutes across the country, including the requirement that individuals or businesses operating within the state notify residents whose "personal" or "protected" information is acquired without authorization. SB62 also provides other protections not found in other states' breach notification statutes. For example, SB62 includes a 60-day deadline for notification, provides protection for certain categories of health and biometric information, and requires the notification of consumer reporting agencies of a breach of system security. The following is a summary of the key provisions of the new statute:

Scope of coverage: SB62 applies to any "information holder," that is, "any person or business that conducts business" in South Dakota" and "owns or retains computerized personal or protected information of residents of this state." SB62 also applies to out-of-state entities that "own" or "retain" the information of South Dakota residents. Like many other state notification statutes, SB62 only applies to the unauthorized acquisition of electronic records, not paper records.

Definition of personal information: As is common in many state breach notification statutes, South Dakota defines personal information as a person's first name or first initial and last name, in combination with any one or more of the following data elements:

  • Social Security number;
  • driver's license or other unique government identification number;
  • credit, debit, or other account number, in combination with any required security code, access code, password, routing number, PIN, or other additional information that would permit access to a person's financial account;
  • health information as defined under 45 C.F.R. § 160.103; or
  • an employer-assigned identification number in combination with a required security code, access code, password, or biometric data used for authentication purposes.

Definition of protected information: In addition to defining categories of "personal information," the bill also defines a category of "protected information" that, if compromised, would trigger the statute's notification requirements. SB62 defines "protected information" as:

  • a user name or email address in combination with a password, security question answer or other information that permits access to an online account; and
  • An account, credit, or debit card number, in combination with any required security code, access code, or password that permits access to a person's financial account.

The inclusion of this additional category of protected information reflects the concern for the privacy of online and social media accounts that are often sought out by cyber criminals and fraudsters. The data in these accounts sometimes fall outside of the definition of "personal information" in other state statutes.

Definition of a breach: A "breach of system security" under the statute is defined as the unauthorized acquisition of "unencrypted computerized data, or encrypted computerized data and the encryption key" that materially compromises the "security, confidentiality, or integrity of personal or protected information maintained by the information holder." 

Defined deadline for consumer notification and risk of harm analysis: The new law requires South Dakota residents to be notified "not later than 60 days" from the discovery of a breach, unless the information holder (following "an appropriate investigation and notice to the attorney general") determines the breach will not likely result in harm to the affected person. South Dakota therefore joins a minority of states in imposing a defined deadline for the disclosure of a breach – not later than 60 days. The requirement in most other states, including neighboring North Dakota, is to notify affected parties as expediently as possible without undue or unreasonable delay.

South Dakota's Attorney General Marty Jackley explained the rationale for a 60-day notification time limit by stating:

"You know, I will tell you, probably the biggest conversation point in the different groups that worked on this was the 60 days. Originally it was set at 30 days. It then moved to 45 days, and we set it at 60 days. The reason for that? Most of the federal compliance requirements are at 60 days, and we didn't want to double up [notification requirements for South Dakota information holders]1."

Attorney general notification: Any information holder that experiences a breach of system security affecting more than 250 residents must also inform the South Dakota attorney general of the incident.

Consumer Reporting Agency (CRA) notification: SB62 requires notice be given to CRAs (defined under the Fair Credit Reporting Act), or to any other credit bureau or agency that compiles consumer information on a nationwide basis of the timing, distribution, and content of the consumer notice.

Law enforcement delay: Like many other state breach notification statutes, SB62 permits a notification delay if a law enforcement agency determines that notice will impede a criminal investigation. The subsequent notice must be made no later than 30 days after the law enforcement agency determines that notice will no longer compromise the criminal investigation.

Criminal and civil penalties for non-disclosure: The South Dakota attorney general may criminally prosecute the failure to disclose a breach as "a deceptive act or practice" – a class 6 felony, subjecting those convicted to a potential sentence of up to two years in prison. In addition, the attorney general may also bring an action to recover, on behalf of the state, a civil penalty up to $10,000 per day per violation, plus attorneys' fees and any costs. Although these penalties can be significant, according to the testimony offered in support of the statute, they will be reserved for matters in which willful and egregious conduct is taken to hide data security incidents from the public.

In response to questions about SB62's potentially harsh consequences, Jackley testified, "When you have a data breach, this bill doesn't require us to go second guess the security system of the business. It doesn't require us to look at what controls are in place. It's simply a notification bill." Addressing other concerns that individuals or businesses might be punished for breaches that they are unaware of, he added, "They have to know about it. In other words, this isn't a 'should have known about it' type statute. Once they have identified that they have lost this level of personal information, what they'll need to do is contact their customers."

The new Alabama statute – SB318

Like South Dakota, Alabama has joined the national data breach notification picture and has become the 50th state to enact legislation in this area. Senate Bill 318 (SB318) was passed by the Alabama legislature and signed into law by Alabama Governor Kay Ivey on March 27, 2018. SB318 will become effective on June 1, 2018.

Although Alabama was the last of the 50 states to compel data breach notification to its affected citizens, the new statute incorporates many provisions not found in other state breach notification statutes. For example, SB318 requires that even before a breach, all covered entities must implement reasonable security measures to protect sensitive personally identifying information. It also mandates that covered entities undertake "a good faith and prompt investigation" into all data breaches and specifically details the elements required to be undertaken during an investigation. The statute also lists the factors that should be considered in the determination of whether personal data was acquired without authorization. Other state statutes do not provide guidance on the important question of whether data was "acquired" without authorization.

The following is a summary of the key provisions of SB318:

Scope of coverage: SB318 is intended to apply to any "covered entity," that is, "any person, sole proprietorship, partnership, government entity, corporation, nonprofit, trust, estate, cooperative association, or other business entity that acquires or uses sensitive personally identifying information." Like South Dakota's SB62, SB318 applies only to data stored in electronic or digital form, not data contained in paper records.

Definition of a breach: A "breach of security" or "breach" under SB318 is defined as the "unauthorized acquisition of data in electronic form containing sensitive personally identifying information."

Definition of sensitive personally identifying information: Alabama defines sensitive personally identifying information as an Alabama resident's first name or first initial and last name, in combination with any one or more of the following with respect to the same Alabama resident:

  • A non-truncated Social Security number or tax identification number;
  • A non-truncated driver's license number, state issued ID card number, passport or military ID number, or other unique government identification number;
  • A financial account number, bank account number, or credit or debit card number in combination with a security code, access coder or PIN necessary to access the account or to conduct a transaction;
  • Information regarding medical history, mental or physical condition, medical treatment, or diagnosis;
  • An individual's health insurance policy number or subscriber identification number or unique identifier used by a health insurer to identify an individual; or
  • A user name or email address, in combination with a password or security question that would permit access to an online account affiliated with the covered entity that is reasonably likely to contain or is used to obtain sensitive personally identifying information.

Note that specifically excluded from the definition of sensitive personally identifying information is data that has been made lawfully public or data that has been truncated, encrypted, or otherwise modified to render it unreadable or unusable.

Determination of unauthorized access: The following factors may be considered in the determination of whether unauthorized access has occurred to sensitive personally identifying information:

  • Loss of physical possession or control (e.g. lost or stolen computer);
  • Indication of download or copying of data;
  • Identification of fraudulent accounts or reports of identity theft; or
  • Whether the data accessed has been made public.

Risk of harm analysis: SB318 details a risk of harm analysis which must be conducted to determine when a covered entity must give notice of a data breach to affected individuals. It states that when a covered entity determines that sensitive personally identifying information has been acquired (or is reasonably believed to have been acquired) by an unauthorized person, it shall give notice of the breach to each individual if the breach of security "is reasonably likely to cause substantial harm to the individuals to whom the information relates."   

Required investigation: If it has been determined that a breach of security has or may have occurred, a covered entity must undertake a "good faith and prompt" investigation that includes:

  • An assessment of the nature and scope of the breach;
  • Identification of any sensitive personally identifying information involved in the breach;
  • A determination of whether the sensitive personally identifying information may have been acquired without authorization and whether the acquisition is likely to cause substantial harm to individuals; and
  • Identification and implementation of measures to restore the security and confidentiality of systems compromised in the breach.

Defined deadline for consumer notification: SB318 requires that notice to individuals to be conducted "as expeditiously as possible and without unreasonable delay." When informed of a breach by a third-party agent, however, covered entities must provide notice of the breach to affected individuals within 45 days.

Required elements of individual breach notices: Written notice to individuals under the statute includes, at a minimum:

  • Date of the breach;
  • Description of the sensitive personally identifying information;
  • Actions taken to restore data security and confidentiality;
  • Steps individuals can take to protect themselves; and
  • Contact information at the covered entity.

Attorney general notification: Any covered entity that experiences a breach of system security affecting more than 1,000 residents must also inform the Alabama attorney general of the incident as expeditiously as possible. This notice must include a synopsis of events, the approximate number of individuals affected, a description of services being offered without charge, and the contact information for a designated point of contact at the covered entity.

Consumer Reporting Agency (CRA) notification: Additionally, in matters affecting more than 1,000 individuals, SB318 requires covered entities to notify, without unreasonably delay, all consumer reporting agencies (as defined under the Fair Credit Reporting Act) or any other credit bureau or agency that compiles consumer information on a nationwide basis of the timing, distribution, and content of consumer notices.

Third-party agent notification: When a third-party agent experiences a breach in a system maintained by the agent, the agent must notify the covered entity of the breach "as expeditiously as possible and without unreasonable delay, but no later than 10 days" following its determination of the breach or reason to believe the breach occurred. This provision codifies a notification requirement often found in third-party vendor contracts or master service agreements.

Law enforcement delay: SB318 permits a notification delay if a law enforcement agency determines, in writing, that notice would interfere with a criminal investigation or national security. Law enforcement requests to delay notification may be extended as necessary by written request.

Data security standards: Alabama joins 18 other states in requiring the implementation of reasonable safeguards to protect the security, confidentiality, and integrity of electronic data. SB318 requires covered entities and third-party agents to maintain "reasonable security measures to protect sensitive personally identifying information against a breach of security." These measures provide that covered entities consider, where practicable, periodic risk assessments, the evaluation and implementation of critical security controls, and implementation of a process to keep management of the covered entity informed of progress in the implementation of information security measures within the entity.

Penalties for non-disclosure: A violation of the notification provisions of SB318 may constitute an "unlawful trade practice," but does not constitute a criminal offense. The civil penalties that may be imposed can be significant, however. For example, in matters involving the willful or reckless disregard of the notice requirements, the attorney general may seek civil penalties of up to $500,000 per breach, or up to $5,000 per day for each consecutive day that the covered entity fails to take reasonable action to comply.

Conclusion

The South Dakota and Alabama statutes have added the final layers to an already complex patchwork of state breach notification statutes. Until the federal government enacts a set of national data breach notification standards, entities facing a data security incident must ensure that they can comply with each of the 50 states' notification standards and with other potentially implicated state and federal reporting requirements.

The data privacy and cybersecurity team at Lewis Brisbois can assist your organization with all aspects of compliance, training, and response to data breaches and other data security incidents. Our skilled team of attorneys hold industry-recognized information privacy credentials and have significant experience with both incident response and drafting effective policies and procedures to enable full and timely compliance with the various state and federal laws pertaining to data privacy and cybersecurity. 

Citations

1 To listen to the AG Jackley's testimony and the full discussion regarding SB 62, visit: http://sdlegislature.gov/Legislative_Session/Committees/Default.aspx?tab=Minutes&Committee=394&document=22120181000AM&Session=2018&Action=120518#, and click on the "Audio" tab.

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