Risk Scenario + Webinar

The Curse of the Black Adder

A supposed data breach sends a regional grocer scrambling to do damage control.
By: | December 11, 2013 • 8 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

One Fine Fall Day

Aaron Scott watched with pride as his German shorthaired pointer Sadie bulled her way through the switchgrass. Sadie was six, an age when most hunting dogs started to show signs of aging. But Sadie was as heavy in the chest and shoulders as some males, and just as tough.

Scenario_BlackAdder

Then suddenly Sadie was on point, her stub of a tail twitching frenetically. Seconds later, the male bird exploded out of the brush. Aaron swung his grandfather’s over and under Remington up and dropped the bird cleanly. Aaron smiled. It didn’t get any better than this.

Then his phone rang. He had to get it. As the CFO for Pinecrest Food Markets, which had 44 stores in four states, it was part of his job to take calls, all calls.

“This is Aaron,” he said.

“Aaron, it’s Christine.” Christine was Aaron’s older sister and the CEO of the company. Aaron knew that tone in her voice. The news wasn’t good.

“We just got a letter from Spendex that they’ve been hit by malware. It looks like we may have lost credit card numbers for about 600,000 customers.”

Aaron paused and again looked at the scenery and savored the diminishing scent of spent gunpowder. He wished he could turn back the clock to one minute ago, but all that was gone.

“You there?” Christine said.

“I’m here,” Aaron said.

“Can you please get those dogs in the truck and get back to the office? We got work to do.”

Christine preferred jumping horses to bird-hunting. On a fox hunt, she could ride with anyone in the state.

Aaron loved his sister, but he also bore a scar over his right eyebrow where she’d clocked him with a rock when they were preteens.

“I’m comin’. Be there in 30,” Aaron said.

Pinecrest had been founded by Aaron’s grandfather William in an 800-square-foot shop in Johnstown, Pa. It had grown to where it had stores in eastern Ohio, its native western Pennsylvania, West Virginia and the Maryland panhandle.

Scenario Partner

Scenario Partner

Aaron and Christine ran it now. The phrase “three generations — shirt sleeves to shirt sleeves,” was how old-timers described how quickly an inherited family business could fall apart. Aaron and Christine had vowed they would prove that old saying wrong.

Back at the office, Aaron read the letter from the credit card transaction processing vendor Spendex. Spendex was reporting that as many as 26 of its regional retail customers lost credit card numbers to The Black Adder, a malware that strips names, credit card numbers and expiration dates from the magnetic stripes of credit cards.

“Now what?” said Christine.

“Well, we’ve got to tell every affected customer what happened and we need to do it soon,” Aaron said.

“How much is that going to cost?” Christine said.

“Quite a bit, but we’ve got insurance for it,” Aaron said as calmly as he could as he looked down at his iPhone and started scrolling through his contacts.

Aaron was playing possum with his cool tone. He was the family peacekeeper and he knew that his role at times like these was to keep a lid on the much more volatile Christine.

Christine exhaled, and Aaron kept his eyes on his iPhone.

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False Start

Part of the Pinecrest brand came from where it was based and who founded it.

Based as it was in a state that was home to almost a million military veterans, Pinecrest aligned itself with traditional values like patriotism, community, faith and family.

There was a picture of a local veteran who had given his life in armed conflict in every Pinecrest store.

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So when it came to the data breach notification, Christine Scott — in what she felt was full alignment with the brand — didn’t shrink from responsibility.

In addition to letters and emails sent to Pinecrest’s 600,000 affected customers, Christine called local news stations to broadcast news of the breach and her promises to make good. She didn’t bother to ask Aaron whether he thought that was a good idea.

“Every one of our customers will be reimbursed for their time and trouble, including a year’s worth of multi-bureau credit monitoring services,” Christine said while the TV cameras recorded her.

“Well that’s what the policy says, doesn’t it?” Christine said when Aaron told her later that she probably shouldn’t have said that on television.

The very next day, a phone call from Pinecrest’s insurance broker was the second bad call Aaron got that month.

“Multi-bureau? No. The policy will cover services from a single credit monitoring bureau,” the broker, Robert Franz, told Aaron.

As Aaron spoke with Robert, he was multitasking and monitoring his emails. He saw an email marked “urgent” from Spendex. It was about the data breach.

“Hey Robert, can I call you back in a few minutes? I’ve got something hopping here,” Aaron said.

“Sure,“ Robert said, but in a tone that implied, “What could be more important than this?”

As it turned out, the email from Spendex was plenty important.

The notice from Spendex explained that although it was obligated to inform all of its customers that there had been a breach, in reality, only 14 of its 26 retail customers had been impacted. The clincher? Pinecrest wasn’t one of them.

Aaron pushed back from his desk and ran his hands through his hair.

“What the … ?” he said as loudly as he would say anything.

“What is it?” said Christine, popping her head into his office. She knew from the volume of Aaron’s voice that it was something big.

“We didn’t lose any data. We didn’t lose any data at all,” Aaron said.

“Great,” Christine said.

“No, not great,” Aaron said. “We just told about a million people that we did.”

“Now what do we do?” Christine asked.

Aaron felt that Christine had burned him before by going on television without seeking his counsel. That experience caused him to dig in his heels with Christine over what to do next.

“Slow down, just slow down,” Aaron said when the siblings met to go over strategy.

“I don’t know that we need to come out with an announcement just yet.”

Aaron’s reaction to his sister’s outspokenness had caused him to miscalculate. A full week went by until Pinecrest announced on its website and with another email blast that its customers had, after all, not been impacted by the Black Adder strike.

The company’s pause in making that announcement was as toxic as a rattlesnake bite.

The local media reacted negatively to the company’s week-long silence. News that the company sat on the knowledge that customers hadn’t lost data made the front pages of the Johnstown Tribune-Democrat and the Wheeling News-Register.

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Pinecrest’s Pain

For the first time in its history, Pinecrest was dealing with the full brunt of a hit to its reputation.

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The traditional print media was one thing, and no small thing in the markets Pinecrest served. But online commentary, ungoverned by journalistic ethics, pulled no punches. Commentators ridiculed the company for banking on the military sacrifices of previous generations, when it “didn’t have the guts,” in one poster’s vernacular, to tell people the truth.

The company’s broker, Robert Franz, phoned Aaron with even more bad news.

“You’re not covered for any of your breach notification expenses, or for any credit monitoring services,” Robert told Aaron.

“Please tell me why,” Aaron said, keeping his voice low because he was just not in the mood for any spontaneous crisis communications with his older sister.

“Under your policy, you’re only covered for notification and credit monitoring if there was an actual breach,” Robert said.

“No breach, no coverage,” he said.

“So we’re out about a million dollars,” Aaron said flatly. In the regional grocery business, where margins could sometimes be measured in the low single digits, a million dollars was a very big hit.

“I’m afraid so,” Robert said.

Sales at Pinecrest Food Markets were down around 10 percent in all four states that it operated in.

“Might as well shop at Supermart,”a grizzled Korean War veteran told Channel 11 in Charles Town, West Virginia.

With the company down a million out of pocket and with revenue hamstrung, Christine Scott and the rest of the Pinecrest team had some very difficult and expensive decisions to make.

Should they sue Spendex for its shoddy forensics? And what coverage did they have for the costs of that?

Rumors began to circulate in several state capitals that class action lawsuits were being prepared on behalf of the tens of thousands of Pinecrest customers who felt they were caused needless expense and worry because of the bad information Pinecrest put out to begin with.

Grandstanding attorneys general were probably not far behind. Pinecrest was possibly facing legal action on several fronts and it was unclear whether it had the coverage to pay for its defense.

*****

With the world seemingly against them, Christine and Aaron took a day in late November and went to their grandfather’s hunting cabin in Somerset County.

The grouse were out there, but the two of them just sat staring at the fire in the cabin’s stone fireplace, with Aaron’s two bird dogs stretched out in front of the fireplace.

Sadie looked up hopefully as Aaron got up to throw another log on the fire.

“No huntin’ today, Sadie girl. Daddy is not in the mood,” Aaron said as Christine nursed a bottle of local craft-distilled rye.

“May I have some of that, please?” Aaron asked.

“Get your own bottle,” said Christine.

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Summary

A regional grocery chain gets into hot water after it loses customer financial data. Making matters worse is that the company does not have a good grasp on the language in its cyber coverage policy. The company also suffers reputational damage when it notifies customers based on bad information.

1. Know your partners: Pinecrest sees its problems go from bad to worse because the company it uses to process credit card transactions has shoddy forensics and reports data breaches for customers that in the end had no data breach.

2. Know your coverage: Pinecrest suffers needless losses because key executives don’t understand its insurance policy when it comes to services available under the coverage for data breach notification and credit monitoring.

3. Be as transparent as possible: When it comes to notifying customers of substantial issues that could impact their expenditures, getting out quickly with the best information is extremely important. Pinecrest actually has good news to report midway through this story, but sits on it due to internal friction. The good of the team must clearly win out here.

4. Create realistic expectations: Coverage existed for Pinecrest officials to put together a reasonable response when customer data was lost. But a key executive broadcast inflated statements about what Pinecrest would be able to do, creating equally inflated expectations.

5. Hold vendors accountable: Given the volatile expansion of cyber risk, it makes good sense to require vendors contractually to indemnify you if they lose your crucial customer data.

The Webinar

The issues covered in this scenario center around crisis management and insurance pitfalls associated with loss from a cyber breach. This follow-up webinar focused on specific loss trends and cyber exposures, as well as presented steps to take to strengthen your crisis risk management program.

Presenters

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Download a copy of the slide presentation here.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

Emerging Risks

Stadium Safety

Soft targets, such as sports stadiums, must increase measures to protect lives and their business.
By: | January 10, 2018 • 8 min read

Acts of violence and terror can break out in even the unlikeliest of places.

Look at the 2013 Boston Marathon, where two bombs went off, killing three and injuring dozens of others in a terrorist attack. Or consider the Orlando Pulse nightclub, where 49 people were killed and 58 wounded. Most recently in Las Vegas, a gunman killed 58 and injured hundreds of others.

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The world is not inherently evil, but these evil acts still find a way into places like churches, schools, concerts and stadiums.

“We didn’t see these kinds of attacks 20 years ago,” said Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services.

As a society, we have advanced through technology, he said. Technology’s platform has enabled the message of terror to spread further faster.

“But it’s not just with technology. Our cultures, our personal grievances, have brought people out of their comfort zones.”

Chavious said that people still had these grievances 20 years ago but were less likely to act out. Tech has linked people around the globe to other like-minded individuals, allowing for others to join in on messages of terror.

“The progression of terrorist acts over the last 10 years has very much been central to the emergence of ‘lone wolf’ actors. As was the case in both Manchester and Las Vegas, the ‘lone wolf’ dynamic presents an altogether unique set of challenges for law enforcement and event service professionals,” said John

Glenn Chavious, managing director, global sports & recreation practice leader, Industria Risk & Insurance Services

Tomlinson, senior vice president, head of entertainment, Lockton.

As more violent outbreaks take place in public spaces, risk managers learn from and better understand what attackers want. Each new event enables risk managers to see what works and what can be improved upon to better protect people and places.

But the fact remains that the nature and pattern of attacks are changing.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility, in terms of behavioral patterns or threat recognition, thus making it virtually impossible to maintain any elements of anticipation by security officials,” said Tomlinson.

With vehicles driving into crowds, active shooters and the random nature of attacks, it’s hard to gauge what might come next, said Warren Harper, global sports & events practice leader, Marsh.

Public spaces like sporting arenas are particularly vulnerable because they are considered ‘soft targets.’ They are areas where people gather in large numbers for recreation. They are welcoming to their patrons and visitors, much like a hospital, and the crowds that attend come in droves.

NFL football stadiums, for example, can hold anywhere from 25,000 to 93,000 people at maximum capacity — and that number doesn’t include workers, players or other behind-the-scenes personnel.

“Attacks are a big risk management issue,” said Chavious. “Insurance is the last resort we want to rely upon. We’d rather be preventing it to avoid such events.”

Preparing for Danger

The second half of 2017 proved a trying few months for the insurance industry, facing hurricanes, earthquakes, wildfires and — unfortunately — multiple mass shootings.

The industry was estimated to take a more than $1 billion hit from the Las Vegas massacre in October 2017. A few years back, the Boston Marathon bombings cost businesses around $333 million each day the city was shut down following the attack. Officials were on a manhunt for the suspects in question, and Boston was on lockdown.

“Many of these actions are devised in complete obscurity and on impulse, and are carried out by individuals with little to no prior visibility.” — John Tomlinson, senior vice president, head of entertainment, Lockton

“Fortunately, we have not had a complete stadium go down,” said Harper. But a mass casualty event at a stadium can lead to the death or injury of athletes, spectators and guests; psychological trauma; potential workers’ comp claims from injured employees; lawsuits; significant reputational damage; property damage and prolonged business interruption losses.

The physical damage, said Harper, might be something risk managers can gauge beforehand, but loss of life is immeasurable.

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The best practice then, said Chavious, is awareness and education.

“A lot of preparedness comes from education. [Stadiums] need a risk management plan.”

First and foremost, Chavious said, stadiums need to perform a security risk assessment. Find out where vulnerable spots are, decide where education can be improved upon and develop other safety measures over time.

Areas outside the stadium are soft targets, said Harper. The parking lot, the ticketing and access areas and even the metro transit areas where guests mingle before and after a game are targeted more often than inside.

Last year, for example, a stadium in Manchester was the target of a bomb, which detonated outside the venue as concert-goers left. In 2015, the Stade de France in Paris was the target of suicide bombers and active shooters, who struck the outside of the stadium while a soccer match was held inside.

Security, therefore, needs to be ready to react both inside and outside the vicinity. Reviewing past events and seeing what works has helped risk mangers improve safety strategies.

“A lot of places are getting into table-top exercises” to make sure their people are really trained, added Harper.

In these exercises, employees from various departments come together to brainstorm and work through a hypothetical terrorist situation.

A facilitator will propose the scenario — an active shooter has been spotted right before the game begins, someone has called in a bomb threat, a driver has fled on foot after driving into a crowd — and the stadium’s staff is asked how they should respond.

“People tend to act on assumptions, which may be wrong, but this is a great setting for them to brainstorm and learn,” said Harper.

Technology and Safety

In addition to education, stadiums are ahead of the game, implementing high-tech security cameras and closed-circuit TV monitoring, requiring game-day audiences to use clear/see-through bags when entering the arena, upping employee training on safety protocols and utilizing vapor wake dogs.

Drones are also adding a protective layer.

John Tomlinson, senior vice president, head of entertainment, Lockton

“Drones are helpful in surveying an area and can alert security to any potential threat,” said Chavious.

“Many stadiums have an area between a city’s metro and the stadium itself. If there’s a disturbance there, and you don’t have a camera in that area, you could use the drone instead of moving physical assets.”

Chavious added that “the overhead view will pick up potential crowd concentration, see if there are too many people in one crowd, or drones can fly overhead and be used to assess situations like a vehicle that’s in a place it shouldn’t be.”

But like with all new technology, drones too have their downsides. There’s the expense of owning, maintaining and operating the drone. Weather conditions can affect how and when a drone is used, so it isn’t a reliable source. And what if that drone gets hacked?

“The evolution of venue security protocols most certainly includes the increased usage of unmanned aerial systems (UAS), including drones, as the scope and territorial vastness provided by UAS, from a monitoring perspective, is much more expansive than ground-based apparatus,” said Tomlinson.

“That said,” he continued, “there have been many documented instances in which the intrusion of unauthorized drones at live events have posed major security concerns and have actually heightened the risk of injury to participants and attendees.”

Still, many experts, including Tomlinson, see drones playing a significant role in safety at stadiums moving forward.

“I believe the utilization of drones will continue to be on the forefront of risk mitigation innovation in the live event space, albeit with some very tight operating controls,” he said.

The SAFETY Act

In response to the terrorist attacks on Sept. 11, 2001, U.S. Homeland Security enacted the Support Anti-Terrorism by Fostering Effective

Warren Harper, global sports & events practice leader, Marsh

Technologies Act (SAFETY Act).

The primary purpose of the SAFETY Act was to encourage potential manufacturers or sellers of anti-terrorism technologies to continue to develop and commercialize these technologies (like video monitoring or drones).

There was a worry that the threat of liability in such an event would deter and prevent sellers from pursing these technologies, which are aimed at saving lives. Instead, the SAFETY Act provides incentive by adding a system of risk and litigation management.

“[The SAFETY Act] is geared toward claims arising out of acts of terrorism,” said Harper.

Bottom line: It’s added financial protection. Businesses both large and small can apply for the SAFETY designation — in fact, many NFL teams push for the designation. So far, four have reached SAFETY certification: Lambeau Field, MetLife Stadium, University of Phoenix Stadium and Gillette Stadium.

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To become certified, reviewers with the SAFETY Act assess stadiums for their compliance with the most up-to-date terrorism products. They look at their built-in emergency response plans, cyber security measures, hiring and training of employees, among other criteria.

The process can take over a year, but once certified, stadiums benefit because liability for an event is lessened. One thing to remember, however, is that the added SAFETY Act protection only holds weight when a catastrophic event is classified as an act of terrorism.

“Generally speaking, I think the SAFETY Act has been instrumental in paving the way for an accelerated development of anti-terrorism products and services,” said Tomlinson.

“The benefit of gaining elements of impunity from third-party liability related matters has served as a catalyst for developers to continue to push the envelope, so to speak, in terms of ideas and innovation.”

So while attackers are changing their methods and trying to stay ahead of safety protocols at stadiums, the SAFETY Act, as well as risk managers and stadium owners, keep stadiums investing in newer, more secure safety measures. &

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