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Failure to encrypt hospital costs $ 3.2 million, and may threaten cyber coverage



Discussed Friday at the Hunton Privacy and Information Security Blog, the US Department of Health and Human Services has imposed an unauthorized $ 3.2 million fine on the Children's Medical Center of Dallas due to HIPPA-protected breach information. The violations were alleged to have arisen in 2009 (when an employee lost an unencrypted Blackberry containing electronically protected health information (ePHI) for 3,800 individuals); 2010 (when a hospital staff lost an "iPod device" synchronized to a hospital email account, ePHI compromises at least 22 people); and 2013 (when an unencrypted laptop, containing ePHI for 2,462 individuals, was stolen from the hospital). The government's investigation apparently led to the child hospital recognizing additional theft of ePHI-containing devices in 2008 and 2009.

These claims, along with other items raised in HHS correspondence to the hospital, underline common obstacles to insurance policies that policyholders can face when seeks compensation for state fines for ePHI-related losses:

  • Tires for regulatory fines. The scope of regular fines is now a common part of the cyber insurance portfolios. however, some policies still contain obsolete or unreasonably wide-ranging exclusion that should be negotiated by implicit policy.
  • Exclusion of unencrypted devices. Many insurers require encryption, period. In fact, inability to ensure complete encryption can stop coverage negotiations in the tracks. Other policies require encryption, implicitly, by the use of exclusions that exclude coverage for claims against non-encrypted data breaches that can be modified or eliminated before policy placement under the right circumstances.
  • The former exclusion of knowledge. Insurance policies exclude claims arising from situations that the insured would reasonably have foreseen to occur. In conjunction with this, insurers have been known to rely on incorrect, incomplete or omitted responses to insurance application issues for past loss and current security measures to cancel coverage.

Here, HHS reported that children had been notified in 2007 and 2008 by independent threat analysis companies as encryption was necessary to protect their units, but failed to implement encryption on all units until April 201

3. Knowledge of this, especially if it is missing real or attempted remedies can be used to deny coverage. [19659003] Retroactive date. Policies of all kinds will include retroactive dates and accompanying exceptions covering coverage for errors and events that occurred before the specified dates. Ideally, "retro" dates before the end of the policy start date should be at least 2 years. However, the appropriate retroactive date will depend on the company's risk, loss history and any premium increases that result from a broader retroactive period. The child hospital would have needed a substantially broader retroactive period to get the losses that led to fines within the scope of the coverage.
  • Fin v. Settlement . HHS noted that children did not request a hearing within the necessary time period, which means that the fine cannot be appealed. The decision to abstain from a hearing or a negotiated settlement may have been a strategic determination with its insurer, which would usually have extensive rights to control any defenses or possible settlements in relation to covered claims. Failure to include the insurer in the decision-making process on how to respond to or resolve a claim may be an obstacle to coverage, especially if the insurer's rights have been damaged.
  • These are just some of the common obstacles to cover when faced with a penalty fine. Using experienced coverage boards can help insured to minimize the effects of these barriers and otherwise fill gaps in coverage, even when a loss history is less than the star. Hopefully, the children's good policies and the right broker-external advisors are in place so that it will not be lost for the loss.


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