Insurer Won't Pay Out For Security Breach Because of Lax Security

chicksdaddy writes: In what may become a trend, an insurance company is denying a claim from a California healthcare provider following the leak of data on more than 32,000 patients. The insurer, Columbia Casualty, charges that Cottage Health System did an inadequate job of protecting patient data. In a complaint filed in U.S. District Court in California, Columbia alleges that the breach occurred because Cottage and a third party vendor, INSYNC Computer Solution, Inc. failed to follow "minimum required practices," as spelled out in the policy. Among other things, Cottage "stored medical records on a system that was fully accessible to the internet but failed to install encryption or take other security measures to protect patient information from becoming available to anyone who 'surfed' the Internet," the complaint alleges. Disputes like this may become more common, as insurers anxious to get into a cyber insurance market that's growing by about 40% annually use liberally written exclusions to hedge against "known unknowns" like lax IT practices, pre-existing conditions (like compromises) and so on.

Comments

Seems reasonable

[Bruce66423]

If a company cuts corners on security, then in the same way that if I leave my door unlocked and get burgled, I can't make a claim. There's going to be a good living for lawyers establishing what is the required level of security. But if this incentivises senior managers to ask the right questions, then it's probably a good development.

Re:Seems reasonable

[fuzzyfuzzyfungus]

Not that real world IT systems often ascend to this level of security; but the issue is not going to be clarified by the fact that the analogy to physical security is only partially accurate: everyone accepts that (for a given purpose; bank vaults and nuclear installations get judged differently than houses) there is some level of 'reasonable security', which reflects appropriate caution on the policyholder's part; but is known to be breakable. Materials have limited strength, police have nonzero response time, sensors generate false negatives.

With IT systems(at least at the level of software attacks, if they break in at the silicon level it's another story), there is a platonic essence of 'the secure' floating out there, though generally far, far, far, too expensive, cumbersome, and slow to build to ever see the light of day; and there really isn't the same degree of agreement about what counts as 'secure enough for X' or 'incompetent'. Gross incompetence is something you can identify, and there are various formally proven systems in existence, mostly for the constrained use cases of cost-insensitive customers; but the stuff in the middle is very much up in the air.

Re:Seems reasonable

[Rich0]

everyone accepts that (for a given purpose; bank vaults and nuclear installations get judged differently than houses) there is some level of 'reasonable security', which reflects appropriate caution on the policyholder's part; but is known to be breakable.

I agree with your post. I'll just add that a big problem with IT security is that companies cannot rely on the same level of protection from governments in preventing intrusion.

For example, if I have a safe in my house, the means an attacker would have to penetrate it are going to be limited. Since my township has police and neighbors that wander around, they can only spend so much time there before they're likely to be detected. They can generally only carry in stuff that will fit in the doors and is man-portable, since if they have to cut a hole in the house and lower their equipment using a giant crane somebody is likely to notice. If they want to use explosives they will have to defeat numerous regulatory and border controls designed to prevent criminals from gaining access to them, and of course they will be detected quickly. Some destructive devices like nuclear weapons are theoretically possible to use to crack a safe, but in practice as so tightly controlled that no common thief will have them. If the criminal is detected at any point, the police will respond and will escalate force as necessary - it is extremely unlikely that the intruder will actually be able to defeat the police. If the criminal attempted to bring a platoon of tanks along to support their getaway the US would mobilize its considerable military and destroy them.

On the other hand, if somebody wants to break into my computer over the internet, most likely nobody is going to be looking for their intrusion attempts but me, and if they succeed there will be no immediate response unless I beg for a response from the FBI/etc. An intruder can attack me from a foreign country without ever having to go through a customs control point. They can use the absolute latest technology to pull off their intrusion. Indeed, a foreign military might even sponsor the intrusion using the resources of a major sate and most likely the military of my own state will not do anything to resist them.

The only reason our homes and businesses have physical security is that we have built governments that provide a reasonable assurance of physical security. Sure, we need to make small efforts like locking our doors to sufficiently deter an attacker, but these measures are very inexpensive because taxpayers are spending the necessary billions to build all the other infrastructure.

When it comes to computer security, for various reasons that secure environment does not exist.

Re: Seems reasonable

[Anonymous Coward]

I'm not so sure about that. I've had the misfortune of dealing with auditors whose definition of best practices included completing non-deviation from things they obviously read out of a college textbook and do not understand at all.

The notion of actual risk and threat analysis and applying practices to suit situations was completely alien to them.

I've also dealt with very competent auditors. I rather miss dealing with them. I imagine the incompetent ones cost less, and that kind of thing is going to be a problem as security audits become more prevalent.

That, and we must never forget that as much as we may applaud the insurance company in this particular story for calling out poor practices, the primary purpose of a modern insurance company is to take your money and give you nothing in return. Everybody needs to be very aware of that, and be untrusting in all your dealings with anyone in the insurance business.