Insurers Sue Trustwave for $30M Over '08 Heartland Data Breach

It's been a decade since the massive Heartland Payment Systems data breach, but the legal fallout continues: Two insurers have filed a lawsuit demanding $30 million in restitution from the security vendor that certified the company as PCI DSS-compliant prior to the attack.

Insurance firms Lexington Insurance Co., of Massachusetts, and Beazley Insurance Co., of Connecticut, on June 28 filed suit in the Circuit Court of Cook County, Ill., claiming professional malpractice by security firm Trustwave Holdings Inc. in the 2008 data breach of Heartland that led to the insurers paying some $30 million in claims. 

The lawsuit came in response to a Trustwave court filing on June 22 in Delaware that petitioned the court to rule the insurers' demands moot due to statute of limitations on the case, and that Trustwave maintained it did not breach its audit contract with Heartland. Trustwave filed the case after the insurers sent the firm a letter demanding payment for insurance it paid out related to the breach. Lexington and Beazley then intensified the pressure by taking the suit to court in Illinois.

"The insurers' spurious demand related to a decade-old breach is entirely without merit. Trustwave initiated this lawsuit in order to obtain a judgment accordingly and intends to pursue this matter vigorously," Trustwave said in a statement provided to Dark Reading.

Trustwave also said its PCI assessment isn't the equivalent of managing security for Heartland.

"Trustwave filed a lawsuit in Delaware against Lexington and Beazley in response to their time barred and unwarranted attempt to recoup the insurance proceeds they paid associated with Heartland's 2008 data breach. The insurers subsequently filed a duplicative suit in Illinois regarding the exact same matter," Trustwave said in the statement.

Trustwave's PCI DSS assessment of Heartland was no guarantee that the company had not been or would not breached, according to Trustwave. "Trustwave did not manage Heartland's information security, and at no time did Heartland assign blame or make any claim against Trustwave," the company said. 

Neither Lexington nor Beazley had responded to press inquiries as of this posting.

Lexington and Beazley's lawsuit claims Trustwave was responsible for the breach at Heartland and that the security firm had handled PCI DSS assessments, vulnerability scans, and compliance testing services for the payment processor starting in 2005, according to a report by The Cook County Record. The complaint claims the 2009 breach is connected to the SQL injection attack that began on July 24, 2007, on Heartland's system and slurped magnetic stripe data. Malware was planted on May 14, 2008, the suit said, and Trustwave's testing didn't detect it, the report noted.

Trustwave certified Heartland as PCI DSS-compliant in 2007 and 2008 after its audits.

Credit card giant Visa conducted its own investigation of the PCI DSS certification and found multiple PCI DSS violations. In 2015, most of the breach litigation was settled. Lexington forked out $20 million in insurance reimbursements, while Beazley paid out $10 million. 

Heartland reportedly paid out some $148 million in legal fees, settlements, and other costs associated with the breach over time.

Andrew Hay, co-founder and CTO of Leo Cyber Security, says the lawsuit against Trustwave is bad news for security companies.

"I think this sets a very dangerous precedent for security companies providing services. The customer does, and should, have an expectation of protection as a result of deploying mitigating controls. What's missing in the vendor space, however, are strict rules of engagement related to the proper deployment, management, and monitoring of said controls – both technical and documentation/program," he says. "It's one thing to deploy a tool to address an issue, but it's an entirely different challenge to operationalize the control from a program perspective."

Security vendors can't guarantee their products or services a cure, but instead should position their offerings as a way to help lessen the blow of threats if they are properly deployed, for instance, Hay says.

The case is likely just the tip of the iceberg, too. It's "a huge win for the cyber-liability insurance providers and associated reinsurance companies, as it will likely be touted as justification for protecting your organization against future litigation," Hay says. "We'll also see an increase in cyber-liability insurance carried by our security vendors to protect against similar litigation as well."

Heartland's hack exposed some 130 million US debit and credit card accounts – the largest breach ever recorded at the time. The incident, which was first made public in January 2009, led the company to up its security game with end-to-end encryption, tokenization, and EMV chip-and-pin payment card technology.

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