Data Breach Lawsuits Less Likely In Hacks

Ever wonder about the odds of a lawsuit in the wake of a data breach? According to new research, breaches caused by careless handling of personal data inspire most victims to sue the breached organization that exposed their data. Companies who get hacked by outside forces are less likely to face litigation.

A group of researchers from Carnegie Mellon's Heinz College of Public Policy and Information Technology and Temple University's Beasley School of Law have published a new paper detailing their research on the probability of breach lawsuits and of cases reaching settlement. The researchers studied more than 200 federal data breach lawsuits filed between 1998 to 2011, and published their results in "Empirical Analysis of Data Breach Litigation."

Do the findings mean victims don't necessarily hold the company responsible for their exposed data if outside circumstances led to a hack or breach? It appears they are less tolerant or forgiving of missteps or carelessness with the handling of the data internally. It also bolsters the argument that victim organizations should come clean with a "mea culpa," according to one renowned security expert.

"Despite companies being told by their attorneys to never comment on [a hack], if in fact they get up and say, 'I'm sorry,' they are much less likely to get sued," says Bruce Schneier, CTO at BT Counterpane. "People are pretty forgiving. This is not surprising ... it's been confirmed in many other studies."

Breaches that occurred due to "unauthorized disclosure or disposal" of personal information are twice as likely to generate a lawsuit than ones that came out of a cyberattack. When the company that was breached mishandles data (think misplaced data drives or unauthorized access to the data), it has a 7 percent higher probability of getting sued. When a cyberattack is the cause of a breach, there's a nearly 3 percent more likely chance of a lawsuit, according to the study.

"These results suggest that plaintiffs respond more to the careless or negligent handling by a firm of their personal information than to the firm's inability to withstand a cyber-attack," the researchers wrote in their paper.

But the overall size and scope of a breach, the cause, and the types of personal information that's exposed aren't major factors in a data breach lawsuit ruling or outcome. "Instead, the probability of settlement appears to be driven by the presence of actual financial loss, and class certification," the researchers wrote.

When a plaintiff claims to have suffered financial damages from the breach, the defendant organization settles 30 percent more often, as well as if a class action suit is filed. Companies are 3.5 times more likely to be sued if their customers suffered financial harm from a breach. Offering free credit monitoring can cut those odds, however, according to the research.

Nearly 90 percent of the cases settled were ones where the individual could show harm as a result of the breach, and they were settled in half of the cases where harm wasn't demonstrated.

And if the breach exposed financial information, the chance of a lawsuit was 9.7 percent higher probability. "Surprisingly, however, breaches involving social security numbers were negatively correlated with lawsuit, though the effect was relatively, small at 2.4%," the report says. And medical data or credit card data don't affect the probability of litigation.

"Overall, these results suggest that only breaches of financial information and, oddly, date of birth are more likely to result in a lawsuit. While some may speculate that feelings of strong privacy for one's information may lead them to filing suit, this is not uniformly reflected in our results. If it were, we would expect that compromise of all forms of PII would be strong predictors of lawsuit," the report says.

A copy of the research paper, authored by CMU's Sasha Romanosky and Alessandro Acquisti and Temple's David Hoffman, is available here (PDF).

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