Liability for data breaches goes beyond customer lawsuits
July 27, 2010 by Steve HannafordPosted in: In this week's e-newsletter, Latest News & Views, Regulations & Compliance
It’s not just your customers who’ll sue you if you’re hit by data thieves. That’s what retailer TJX Companies, owner of clothing discounters T.J. Maxx and Marshalls, found out after a data breach led to a flurry of different lawsuits.
From 2005 to 2007, TJX fell victim to a breach in which more than 45 million customer credit card numbers were pilfered from its databases.
The good news: The thief was caught by the Feds and sentenced to a 20-year prison sentence.
The bad news: The company got hit by lawsuits from every direction. First were the banks and credit card issuers, who had been hit by false claims and the need to help untangle the mess caused by TJX’s IT vulnerability.
Then came the class-action suits by groups of customers who were stung or at least inconvenienced by the breach.
And recently, TJX settled a lawsuit from investors, including pension funds, who sued the board of directors, alleging that those individuals, failed in their duty to protect customers’ personal data (and thus lowered stock prices).
That suit was settled at a reported cost of $595,000, with the board admitting to no wrongdoing. All in all, TJX had to set aside $178 million cash reserves to settle the lawsuits.
The lesson: Courts and plaintiffs are getting serious about data breaches. And the number of parties willing to sue is growing. It may in the end be impossible to outwit the most determined and crafty data thieves, but being able to demonstrate in court that your company was not negligent, that it had a rational, constantly updated data protection initiative certain won’t hurt, whether with judges or with insurers.
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Tags: data breach, lawsuit, Marshalls, T.J. Maxx, TJX Companies
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