Strict liability for data breaches?

The law doesn't define reasonable. There are lots of ways to define it - common practice, industry standards, best practices, whatever everybody else is doing. If nobody else is securing the data, then you don't have to either, do you? I mean, ten thousand lemmings can't possibly be wrong, can they?

Indeed, in this case the federal court found that the mortgage company was not negligent. The court found that the mortgage company had written security policies (but did not address the adequacy of these policies), had current risk assessment reports (but didn't address what the company actually did with these reports) - and, at least according to an affidavit of the expert hired by the mortgage company (no conflict of interest there), had "proper safeguards for its customers' personal information". Thus, the court concluded, they had complied with the statutory provisions of the GLBA, and couldn't have been negligent, could they? Indeed, the court noted dismissively and literally, "despite Guin's persistent argument that any nonpublic personal information stored on a laptop computer should be encrypted, the GLB Act does not contain any such requirement." Well, duh. The GLBA just says have reasonable measures to protect the data - it also doesn't say that you have to use SSL on their website, or that you have to have a firewall, or that the firewall has to be properly configured, or that you have to change the default passwords, or that you have to do a thousand other security things that are reasonable to do. Indeed, the entire security guidelines of GLBA can be printed on the back of a napkin. It establishes goals - not procedures. It is not surprising that the GLBA does not require encryption on stored data.

The court concluded that it was not foreseeable that the laptop containing this information, being kept in this home office, might be the subject of a burglary. The court even deemed the location to be a "relatively safe" neighborhood in suburban Washington DC. This is despite the fact that last year alone there were a large number of laptop thefts across the United States.

The court also found that the people whose data was lost (well, stolen) could not demonstrate any "damages" as a result of the conduct. Indeed, it is more than likely that in this case - as in the case of most "losses" of data through misplaced disks or stolen computers - the data was either simply mislaid or the computer was stolen for the hardware itself. However, it is different for the court to say that the plaintiff's damages are "slight" from saying there are none at all.

Was the company negligent?

When personal data is lost, customers suffer some minimal anxiety and fear, have to run credit checks and review them, may have to put themselves on credit fraud watch lists, obtain new credit and debit cards, and change their direct deposit, withdrawal or transfer information. This is not the end of the world, but a nuisance to be sure. Why should the customer bear this cost themselves when the only thing the customer did wrong was to place their faith in the financial institution? The goal of the tort system is to make the parties whole. Maybe Guin's damages amounted to $20 to $50 dollars worth of time. Maybe more, maybe less, but certainly not zero. Of course, we also know that those who do steal personal information for identity theft can be very patient indeed - not exploiting the data for weeks, months or years. By that time, Mr Guinn may never know that the loan application filed in his name in Islamabad was the result of a simple two bit burglary in the outskirts of Washington, DC. Nor, for that matter, will any of Brazos' other customers.

Indeed, the court found that it was so obvious that the mortgage company did nothing negligent, and that nobody could ever anticipate that a laptop containing thousands of bits of personal information might be stolen. The court also found that the customers who put their faith in the mortgage company suffered no ill effects, despite the fact that their personal information was now floating around the ether. In fact the court did not even let the case go to trial, but instead granted the defendants summary judgment.

Now, the court wasn't entirely wrong. The negligence system is not intended to be an insurance policy against all harm. It is intended to compensate those who are injured by someone else's failure to adhere to a reasonable standard of care. Lets face it: most companies don't routinely encrypt data, even sensitive personal data, stored on laptops. Or their old hard drives sold on eBay, for that matter.

Laptops are typically kept at home, taken on vacations, thrown in overhead bins on airplanes and trains, kept in cars, and sometimes they're accidentally left at Starbucks. The data in them may be transferred to PDAs, CD-Rs, or USB thumb drives - unencrypted. This is pretty much standard industry practice. What the court failed to do however is to ask the question: should it be? Can we reasonably do better?

In addressing portable sensitive information, entities should reasonably ask themselves a few simply questions, such as: (1) does this information really need to be portable; (2) can it be simply made remotely accessible, and can this be done more securely; (3) does all of the information need to be accessible at all times; (4) can all or part of the information be encrypted at any time; (5) are there reasonable technologies that will, if deployed, better protect this data?

You can still conclude that what the mortgage company did was reasonable, but only after asking and answering these questions. The tort law should force companies to address the true economic consequences of not protecting data. In that way, we can prove the adage that, as NASA learned in their ill-fated Mars probe that crashed due to a programming failure in converting from old British measurements to metric, "an ounce of prevention is worth a kilogram of cure".

Copyright © 2006, SecurityFocus

Mark D. Rasch, J.D., is a former head of the Justice Department's computer crime unit, and now serves as Senior Vice President and Chief Security Counsel at Solutionary Inc.