In recent years, data breaches have escalated from isolated technical issues to significant legal battles. Businesses are witnessing a sharp rise in data breach lawsuits, underscoring the growing legal risks associated with cyber incidents. This trend highlights vulnerabilities in cybersecurity measures (alleged or otherwise) and an increasing willingness of affected parties to seek legal recourse.

Cyber incidents and data breaches were historically considered “short tail” risks, meaning filings were rare, and those that resulted in full litigation were often settled or dismissed. With the number and severity of cyber claims increasing and the passing of stricter consumer data privacy laws, the litigation tail is lengthening. Now, claims can include regulatory claims, data breach class actions, mass arbitrations, and wrongful collection class actions. Some of these claims directly result from a data breach that was inadequately handled or allegedly inadequately handled.

Understanding the long-term implications of data breaches is crucial. Prolonged litigation can drain resources, damage your brand, and erode client trust. It’s imperative to manage these consequences to prepare and protect your organization against future risks.

The Legal Consequences of Data Breaches

Data breach litigation is evolving and the rise of class actions and multidistrict litigation (MDL) is   amplifying the stakes. Class actions allow large groups of affected individuals to sue collectively, increasing the pressure and liability on your organization. MDL consolidates similar cases across jurisdictions, leading to more efficient and formidable legal challenges.

Several legal challenges may arise:

• Proving Harm: Plaintiffs may allege future risks like identity theft or emotional distress, and courts vary in how they interpret these claims.

• Managing Group Litigation: Class actions and group lawsuits can increase legal exposure and result in substantial settlements.

• Jurisdictional Complexities: Cross-border breaches involve navigating different legal systems and regulations, complicating defense strategies.

• Regulatory Compliance: Adhering to evolving laws in multiple jurisdictions can be daunting, and non-compliance can exacerbate legal issues.

Compounding these challenges are regulatory penalties that can threaten your business. A growing number of government agencies have the authority to enforce data privacy laws and investigate security flaws caused by an incident. The Federal Trade Commission in the US is the primary regulator for data breaches, but state attorneys general can also play a role in regulations and fines. The Securities and Exchange Commission (SEC) may enter into oversight and regulation of these events as well. Failure to notify affected parties promptly or comply with regulations can lead to substantial fines and increased scrutiny.

The Financial Impact of Long-Tail Litigation

The costs of long-tail litigation extend far beyond the expenses of addressing the breach itself. You may face ongoing legal fees, potentially for years. Settlements can be substantial, especially in class action lawsuits where damages are multiplied across numerous plaintiffs. Additionally, insurance premiums often increase following a breach, adding to your long-term financial burdens.

Your business could encounter several financial risks, including:

• Increased Operational Costs: Resources may be diverted to handle legal proceedings, affecting day-to-day operations.

• Shareholder Lawsuits: Investors may file lawsuits if they believe the breach resulted from mismanagement, leading to more legal fees and potential settlements.

• Loss of Client Trust: A damaged reputation can lead to decreased sales and lost revenue as clients choose competitors they perceive as more secure.

• Regulatory Fines: Non-compliance with data protection laws can result in hefty fines from regulatory bodies.

• Limitations in Cyber Coverage: Cyber policyholders should understand the limits on coverage and the existing exclusions. 

High-profile cases illustrate the financial fallout of prolonged litigation. For instance, the British Airways data breach led to significant group litigation and substantial fines, impacting the company’s financial stability.

Proactive Strategies To Reduce Litigation Risks

Implementing advanced cybersecurity measures is essential. Techniques like encryption and strict access controls protect sensitive data and serve as legal safe harbors. Taking the appropriate steps to secure information can mitigate liability and potentially avoid regulatory penalties. These measures show due diligence and can strengthen your defense if legal action arises from a breach.

To further reduce litigation risks, consider adopting these proactive steps:

• Employee Training: Regularly educate your staff on cybersecurity best practices to prevent human errors that could lead to breaches.

• Regular Security Audits: Conduct thorough systems assessments to identify and address vulnerabilities before they can be exploited.

• Cybersecurity Insurance: Obtain policies that cover legal fees, settlements, and other costs associated with data breaches to safeguard your financial interests.

• Access Controls: Implement strict protocols to ensure only authorized personnel can access sensitive information.

• Data Encryption: Use advanced encryption methods to protect data at rest and in transit, making it unreadable to unauthorized users.

• Third-Party Assessments: Evaluate the security measures of suppliers and partners to ensure they meet your standards and don’t introduce additional risks.

Incident response plans play a crucial role in minimizing litigation risks. With a well-defined strategy, including tabletop exercises to simulate breach scenarios, organizations can effectively respond during an actual incident. 

Partnering With Experts To Navigate Long-Term Challenges

Experts provide access to specialized knowledge and resources for effectively managing these challenges. Engaging privacy- and cyber-focused counsel is critical to ensuring a smooth response process so you’re not facing these daunting tasks alone. Engaging a trusted partner to cull and mine exposed data, follow appropriate timelines, and offer protective services like credit monitoring can increase defensibility and reduce the risk of over- or under-notifying.

Learn more about Epiq’s data breach notification capabilities.