The Law

Legal Spotlight

A look at the latest decisions impacting the industry.
By: | October 3, 2017 • 4 min read

Invasion of Privacy Exclusion Holds Firm

In November 2012, David Emanuel brought a class action lawsuit against the Los Angeles Lakers basketball team.

Emanuel, who had attended a Lakers game the month before, felt duped after responding to an overhead message displayed on the scoreboard. The message invited game attendees to send a text to a specific phone number with the hopes of seeing their message on the screen.

Emanuel sent a text and received an automated message in return. In the subsequent lawsuit, he alleged that the Lakers sent the response message using an automatic dialing system, which, he said, violated the Telephone Consumer Protection Act and cost him and others in text and data charge fees. They sued for $1,500 and damages.

In 2013, a California district judge dismissed the case, stating that by sending the initial text, Emanuel implicitly consented to receiving a confirmation message. The team settled with Emanuel in 2014 during his appeal.

The Lakers were insured under a ForFront Portfolio insurance policy held by Federal Insurance Co. Federal denied coverage of the suit, because the insurer claimed the TCPA fell under a policy exclusion for invasion of privacy.

The Lakers sued Federal for bad faith refusal to defend or indemnify them. A district judge ruled to dismiss the allegation, agreeing with the insurer that the policy’s invasion of privacy exclusion included the TCPA. The Lakers appealed. A divided panel affirmed the judge’s ruling.

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“The panel held that because a Telephone Consumer Protection Act claim is inherently an invasion of privacy claim, Federal Insurance Company correctly concluded that the underlying Telephone Consumer Protection Act claims fell under the Policy’s broad exclusionary clause,” read the court’s decision.

Scorecard: The Los Angeles Lakers are not entitled to coverage for class allegations that the team sent unwanted text messages to fans.

Takeaway: Insurance policies that exclude privacy-related claims should clarify whether TCPA claims fall within the exclusion.

Cyberattack Costs Insurer Millions

Nationwide Mutual Insurance Co. and its unit Allied Property & Casualty suffered a massive data breach on Oct. 3, 2012. Sensitive information of more than 1 million people was stolen from its databases.

The breach affected both existing and potential customers in 32 states and the District of Columbia. Social Security numbers, driver’s license numbers and Nationwide-assigned creditworthiness scores were made available by the hackers.

Shortly after the breach, the insurer notified the customers that their information was compromised. Nationwide offered free credit monitoring and a $1 million identity theft insurance coverage with no deductible to those affected.

In the August 2017 hearing, state attorneys general from each state alleged that the breach stemmed from a security lapse. Nationwide conceded that there was a “criminal data breach,” yet denied any liability for the exposed information. The company said it took the proper and immediate steps to contain the attack.

The two parties reached a settlement of $5.5 million, to be divided amongst the states and the District of Columbia. The settlement relieves Nationwide from most legal and civil liabilities but not from criminal, antitrust, securities or tax liabilities. A spokesperson for Nationwide said that the company’s security remains compliant with data security laws.

In the end, the settlement did not include allegations of data security law violations. “Protecting consumer data is something that we take seriously,” Nationwide said. The company said it will continue to strengthen cyber-security.

Scorecard: The data breach cost Nationwide $5.5 million, which will be given to those whose information was exposed.

Takeaway: Cybersecurity programs should regularly be updated and reviewed for any potential security risks, even when a program follows security laws.

WC Death Benefits Granted to Widower

A grocery store worker was in her office when she suffered cardiac arrest. A store manager heard her fall and rushed to her aid, but it was too late. Her husband filed for workers’ compensation death benefits, claiming his wife’s death was due in part to the stress of her job.

Probable cause of death was ruled to be cardiac arrhythmia, stemming from arteriosclerotic heart disease, likely worsened by obesity.

The emergency responders’ report stated that coworkers heard the deceased saying “her job was stressing her out,” and that she complained of chest pain shortly before collapsing.

The Workers’ Compensation Board granted the husband workers’ comp death benefits on Oct. 15, 2015. The employer and its carrier appealed.

In the 2017 court hearing, the employer alleged that the cardiac event was due to underlying heart disease. There was no way to prove that job stress caused her heart to stop.

New York workers’ comp law states that barring substantial evidence to the contrary, “an unwitnessed or unexplained death [that] occurs during the course of a decedent’s employment, Workers’ Compensation Law provides a presumption … that the death arose out of the decedent’s employment.”

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Because there was no formal autopsy performed on the deceased, the husband used the medical report as proof his wife’s cardiac arrest was related to the stress of her job. The court ruled the deceased’s work-related stress was a “significant contributing factor,” and her husband should receive death benefits.

Scorecard: The workers’ compensation carrier will pay death benefits to the deceased employee’s husband.

Takeaway: When injury or illness occurs on the job, employers must be diligent in reporting the incident and recording each step taken.

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Entertainment

On With the Show

Entertainment companies are attractive and vulnerable targets for cyber criminals.
By: | December 14, 2017 • 7 min read

Recent hacks on the likes of Sony, HBO and Netflix highlight the vulnerability entertainment companies have to cyber attack. The threat can take many forms, from the destruction or early release of stolen content to the sabotage of broadcast, production or streaming feeds.

Brian Taliaferro, entertainment and hospitality specialist, JLT Specialty USA

“Cyber attacks are becoming the biggest emerging threat for entertainment companies, bringing risk to reputations, bottom lines and the product itself,” said Brian Taliaferro, entertainment and hospitality specialist, JLT Specialty USA.

For most entertainment firms, intellectual property (IP) is the crown jewel that must be protected at all costs, though risk profiles vary by sub-sector. Maintaining an uninterrupted service may be the biggest single concern for live broadcasters and online streaming providers, for example.

In the case of Sony, North Korea was allegedly behind the leak of stolen private information in 2014 in response to a film casting leader Kim Jong Un in what it considered an unfavorable light.

This year, Netflix and HBO both faced pre-broadcast leaks of popular TV series, and Netflix last year also had its systems interrupted by a hack.

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Online video game platforms are also ripe for attack, with Steam admitting that 77,000 of its gamer accounts are hacked every month.

The list goes on and will only get more extensive over time.

Regardless of the platform, any cyber attack that prevents companies from producing or distributing content as planned can have huge financial implications, particularly when it comes to major releases and marquee content, which can make or break a financial year.

“People and culture are the biggest challenges but also the keys to success.” — David Legassick, head of life science, technology and cyber, CNA Hardy

The bottom line, said David Legassick, head of life science, technology and cyber, CNA Hardy, is that these firms have a combination of both assets and business models that are inherently open to attack.

“Vulnerabilities exist at every point in the supply chain because it’s all tech-dependent,” he said, adding that projects often run on public schedules, allowing criminals to time their attacks to maximize impact.

“The combination of IP, revenue and reputation risk make entertainment a hot sector for cyber criminals.”

Touch Point Vulnerabilities

Film, TV, literary and music projects invariably involve numerous collaborators and third-party vendors at every stage, from development to distribution. This creates multiple touchpoints through which hackers could gain access to materials or systems.

According to Kyle Bryant, regional cyber manager, Europe, for Chubb, there is nothing unique about the type of attack media companies suffer — usually non-targeted ransomware attacks with a demand built in.

“However, once inside, the hackers often have a goldmine to exploit,” he said.

He added targeted attacks can be more damaging, however. Some sophisticated types of ransomware attack, for example, are tailored to detect certain file types to extract or destroy.

“NotPetya was designed to be non-recoverable. For a media company, it could be critical if intellectual property is destroyed.”

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As entertainment companies have large consumer bases, they are also attractive targets for ideological attackers wishing to spread messages by hijacking websites and other media, he added.

They also have vast quantities of personal information on cast and crew, including celebrities, which may also have monetary value for hackers.

“It is essential to identify the most critical information assets and then put a value on them. After that, it is all about putting protection in place that matches the level of concern,” Bryant advised.

As with any cyber risk, humans are almost always the biggest point of vulnerability, so training staff to identify risks such as suspicious messages and phishing scams, as well as security and crisis response protocols, is essential. Sources also agree it is vital for entertainment companies to give responsibility for cyber security to a C-suite executive.

“People and culture are the biggest challenges but also the keys to success,” said Legassick.

“Managing the cyber threat is not a job that can just be left to the IT team. It must come from the top and pervade every aspect of how a company works.”

David Legassick, head of life science, technology and cyber, CNA Hardy

Joe DePaul, head of cyber, North America, Willis Towers Watson, suggested entertainment companies adopt a “holistic, integrated approach to cyber risk management,” which includes clearly defining processes and conducting background checks on the cyber security of any third party that touches the IP.

This includes establishing that the third parties understand the importance of the media they are handling and have appropriate physical and non-physical security at least equal to the IP owner in place. These requirements should also be written into contracts with vendors, he added.

“The touchpoints in creating content used to be much more open and collaborative, but following the events of the last few years, entertainment firms have rapidly introduced cyber and physical security to create a more secure environment,” said Ryan Griffin, cyber specialist, JLT Specialty USA.

“These companies are dealing with all the issues large data aggregators have dealt with for years. Some use secure third-party vendors, while others build their own infrastructure. Those who do business securely and avoid leaks can gain an advantage over their competitors.”

Quantification Elusive

If IP is leaked or destroyed, there is little that can be done to reverse the damage. Insurance can cushion the financial blow, though full recovery is very difficult to achieve in the entertainment space, as quantifying the financial impact is so speculative.

As Bill Boeck, insurance and claims counsel, Lockton, pointed out, there are only “a handful of underwriters in the world that would even consider writing this risk,” and sources agreed that even entertainment firms themselves struggle to put a monetary value on this type of exposure.

“The actual value of the IP taken isn’t generally going to be covered unless you have negotiated a bespoke policy,” said Boeck.

“If you’re in season five of a series with a track record and associated income stream, that is much easier, but putting a value on a new script, series or novel is difficult.”

Companies for whom live feeds or streaming are the primary source of revenue may find it easier to recoup losses. Determining the cost of a hack of that sort of service is a more easily quantifiable business interruption loss based on minutes, hours, ad dollars and subscription fees.

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Brokers and insurers agree that while the cyber insurance market has not to date developed specific entertainment products, underwriters are open for negotiation when it comes to covering IP. The ball is therefore in the insured’s court to bring the most accurate projections to the table.

“Clients can get out of the insurance market what they bring to the equation. If you identify your concerns and what you want to get from insurance, the market will respond,” said Bryant.And according to Griffin, entertainment companies are working with their brokers to improve forecasts for the impact of interruptions and IP hacks and to proactively agree to terms with underwriters in advance.

However, Legassick noted that many entertainment firms still add cyber extensions to their standard property policies to cover non-physical damage business interruption, and many may not have the extent of coverage they need.

Crisis Response

Having a well-planned and practiced crisis response plan is critical to minimizing financial and reputational costs. This should involve the input of experienced, specialist third parties, as well as numerous internal departments.

Ryan Griffin, cyber specialist, JLT Specialty USA

“The more business operation leaders can get involved the better,” said Griffin.

Given the entertainment industry’s highly public nature, “it is critically important that the victim of a hack brings in a PR firm to communicate statements both outside and within the organization,” said Boeck, while DePaul added that given that most cyber attacks are not detected for 200-plus days, bringing in a forensic investigator to determine what happened is also essential.

Indeed, said Griffin, knowing who perpetrated the attack could help bring the event to a swifter and cheaper conclusion.

“Is it a nation state upset about the way it’s been portrayed or criminals after a quick buck? Understanding your enemy’s motivation is important in mitigating the damage.”

Some hackers, he noted, have in the past lived up to their word and released encryption keys to unlock stolen data if ransoms are paid. Inevitably, entertainment firms won’t always get so lucky.

Given the potentially catastrophic stakes, it is little surprise these firms are now waking up to the need for robust crisis plans and Fort Knox-level security for valuable projects going forward. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]