Plaintiff wins $148,000 in data breach suit

Courts Privacy, Cyber Risk & Data Security Data Breach Cyber Insurance

On November 3, the U.S. District Court for the District of Minnesota granted a plaintiff technical consulting and software development company’s motion for summary judgment in a data breach suit. According to the order, an unknown bad actor gained unauthorized access to the email account of a plaintiff’s employee and created multiple “rules” that interfered with the proper receipt of incoming emails. The bad actor sent emails to and from the account, at times impersonating the employee and at times impersonating clients. The plaintiff issued two invoices to a particular client while these rules were in place: one invoice was for $137,000 for the plaintiff’s services, and the other invoice was for an additional $39,962. The bad actor emailed the client, posing as the employee, and wrote that it had “recently changed banks and our previous account . . . has been closed, hence, all payments effective immediately will be made directly to our new bank account in compliance with the policy of the company.” The bad actor requested confirmation as to when the client would pay the first invoice “so we can forward our new bank account details.” The client sent the payment to an account controlled by the bad actor. After discovering the bad actor’s conduct, the plaintiff recovered some of that money with the help of the U.S. Secret Service but sought insurance coverage for nearly $148,000, court records show. The defendant had insured the plaintiff under a technology professional liability (TPL) policy that incorporated a Data Breach Coverage Form, which included a “Cyber Business Interruption and Extra Expense” clause. The plaintiff submitted a claim to the defendant seeking coverage under the policy for the money lost to the bad actor. The defendant denied the plaintiff’s claim for coverage. The plaintiff sued, alleging that the defendant’s denial of coverage breached the TPL policy. The court found that using “‘impairment’ rather than ‘interruption’ in the Clause itself demonstrates that the TPL policy specifically grants coverage when a business suffers something less than a total suspension of operations.” The court further noted that the policy covers the loss, granted summary judgment to the plaintiff on its claim that the defendant breached the policy by denying coverage, and awarded the plaintiff nearly $148,000 in damages.