Any business that collects and stores data is vulnerable to cyber attacks and data breaches. Unfortunately, being the victim of a data breach can have serious consequences for businesses, including lawsuits for a data breach, which often result in significant financial losses. In 2022, the average cost of a data breach reached a new high of $4.35 million.
These emerging threats in today’s business landscape compel companies to ramp up their cyber security efforts and invest in a policy to protect the organization from new threats.
This Legal Perspective webinar delves into the legal ramifications of a cyber attack to help brokers and organizations understand the importance of taking a proactive approach to cyber security.
What Are the Consequences of a Cyber Attack?
The impact of a data breach on an organization varies depending on the timing, duration, and industry in which it operates. However, data breaches frequently have financial, reputational, and legal ramifications, especially if a data breach lawsuit is involved.
Most organizations suffer substantial financial loss when hit by a cyber attack, whether from theft of money and information, business disruptions, or loss of business or contracts. It can also include the cost of hiring experts to repair affected systems, devices, and networks. Apart from these costs, organizations can also incur expenses related to data breach lawsuit damages.
Unfortunately, it takes an average time of 287 days to confirm a breach and 80 days to contain one. This challenge makes third-party lawsuits for data breaches plentiful and expensive.
A good business reputation can take years to build, yet one case of a successful data breach can completely damage the trust of customers and stakeholders. Loss of customers is one of the most harmful impacts of cyber crime, as most clients will stop engaging with enterprises that fail to protect customer data. This is especially damaging to small businesses, and industry research revealed that 60% of SMBs fail within six months of disclosing a data breach incident.
Depending on where the business is located and its type, organizations must comply with data protection and privacy regulations dictated in state and federal laws, contracts, international statutes, and regulatory bodies. If data is compromised or if the organization has failed to comply with the suggested security measures, the business may face the following legal consequences:
- Fines and sanctions
- Third-party data breach litigation
- Personal and professional liability
- Compensation claims
Regulatory body notices can entail law-specific deadlines, formal notifications, investigations, and other follow-up actions.
Can Companies Be Sued for Data Breaches?
Following a cyber attack, organizations are expected to fulfill the following obligations:
- Investigate the incident to determine the severity of the attack and the scope of damages.
- Conduct a timely disclosure to data owners, regulating bodies, consumer reporting agencies, and other stakeholders.
- Perform credit and ID monitoring, which entails monitoring any identifiable information in public records, websites, applications, or other locations for unusual activities or data breaches.
When organizations fail to comply with data protection laws and don’t have the appropriate security measures, individuals and other affected third parties can have a legal precedent for a data breach lawsuit. Some causes of action may include negligence, breach of fiduciary duty, false advertising, and breach of warranty.
Plaintiffs can seek damages for harm to credit, time used to investigate, and emotional distress. Resolving these claims can incur significant legal expenses and data breach class action settlements.
Because there are several laws and regulations with which to comply, businesses should try to find the common denominator and utilize it to find the most suitable blanket of protection. They should also fortify their security efforts by reviewing their cyber security policies and monitoring cyber security-related news.
Who Is Liable for a Cyber Attack?
A business can face liability if it fails to implement statutorily mandated security measures, mitigate damage after it occurs, and notify affected third parties, individuals, and regulators.
When businesses don’t have an adequate budget for IT security solutions, the liability could fall on the company’s financial decision-makers, from managers to the CEO. However, if sufficient funds are allocated for cyber attack prevention measures, the CISO (chief information security officer) may be liable for failing to implement necessary technology, respond promptly to a breach, or ensure system maintenance. Lastly, breaches caused by human error can fall squarely on the person who compromised the system.
Organizations should ensure that they implement the required infrastructure for preventing cyber attacks and are adequately protected with proper cyber liability insurance.
Help Your Clients Manage Cyber Risk with ProWriters
Rising lawsuits for data breaches and the associated costs jeopardize the stability of growing businesses. Unfortunately, many businesses are unaware of the repercussions of a data breach lawsuit, but you can educate them on the risks and offer them the protection they need. To learn more, download our FREE copy of Cyber Exposure: What’s the Real Cost.