The Legal Fallout of a Cybersecurity Incident: 4 Surprising Developments

Unexpected Legal Considerations in Cybersecurity Incidents

A Growing Trend: Surprising Post-Incident Concerns

When it comes to cybersecurity incidents, security professionals are well aware of the typical challenges that arise – data breach notifications, regulatory filings, and reputational damage, to name a few. However, there are also unexpected legal considerations that can catch incident responders off guard. As a cyber-incident breach attorney who has dealt with numerous ransomware incidents, I have identified four surprising post-incident considerations that can have a significant impact on legal liability.

1. Cyber Insurance Review of Pre-Incident Security Controls

If your organization has cyber insurance and notifies your carrier about an incident, be prepared for the insurer to conduct a thorough review of your pre-incident security controls. During the reimbursement process, the insurance carrier may ask probing questions about the effectiveness of your security measures and the root cause of the incident. It is crucial to truthfully and accurately describe your security controls on the insurance application and during the underwriting process.

It is worth noting that insurance carriers have become more aggressive in denying claims based on misstatements made during the application process. Failing to be truthful upfront can have severe financial consequences down the line. To avoid potential issues, work closely with your risk management team, insurance broker, and outside counsel to ensure your company’s security controls are accurately assessed, described, and documented before an incident occurs.

2. Auditor Investigations

Auditor investigations are not exclusive to cybersecurity incidents, and many auditors will have questions regarding the incident‘s impact on an organization’s financial statements. Therefore, it is advisable to engage specialized cyber-incident counsel to assist in responding to these inquiries.

It is essential to approach these investigations with caution, as any information shared with a Certified Public Accountant (CPA) is unlikely to be considered confidential or protected by privilege. This means that any statement made about the incident during the audit process could potentially be used against the organization in a subsequent lawsuit. To mitigate this risk, ensure that all statements made to auditors align with the information shared in notification letters, as well as with employees, customers, and the media.

3. Banks Halting Ransomware Payments

In cases where an organization decides to make a ransomware payment, the organization may encounter a series of legal concerns while racing against the threat actor’s timeline to prevent information leaks. While most security professionals are familiar with the US Treasury Department’s Office of Foreign Assets Control (OFAC) process, banking institutions have become increasingly reluctant to process wires to known threat negotiation firms.

The reason for this hesitation stems from the potential liability that organizations in the payment chain could face if an improper payment is made to a sanctioned entity under OFAC regulations. To navigate this challenge, organizations must be prepared to provide documentation and information swiftly to their financial institution. By doing so, they can ensure that the payment process can be cleared in a timely manner.

4. Compliance with Notification Requirements

If your organization serves other businesses or acts as a subcontractor to governmental entities, it is highly likely that you have agreed to specific incident-response notification requirements either through contracts or statutory obligations. Failing to meet these notification requirements can result in your organization being in breach of the contract, with potentially significant penalties at stake.

To avoid the risk of non-compliance, it is crucial to create a comprehensive spreadsheet tracking the relevant notification timelines well in advance of any incidents. Having this prepared beforehand will allow for a rapid and efficient response, saving valuable time and resources that would otherwise be spent on lawyers reviewing contracts to meet notification requirements.

Preparation is Key

Ultimately, the best approach to managing the fallout from a cybersecurity incident is thorough preparation. While even the most well-crafted incident response plan may need to be flexible in the face of changing circumstances, being prepared to handle the various constituencies that will demand answers in the aftermath of an incident is a crucial initial step.

Consulting with risk management teams, insurance brokers, and outside counsel well in advance of any incident can help ensure that your organization’s security controls are accurately documented, potential legal challenges are understood, and proper notification procedures are in place. By addressing these considerations proactively, organizations can better navigate the unexpected legal complexities that arise in the aftermath of a cybersecurity incident.

Keywords: Law-wordpress, cybersecurity, legal fallout, incident developments