Recent Equifax Breach Highlights the Importance of Enterprise Cybersecurity Planning

September 2017

Equifax made headlines last week when it announced that, beginning in late spring, it became the latest in a string of large corporations to be victimized by a cybersecurity attack. Hackers gained access to names, birth dates, social security numbers and other consumer personal data provided to Equifax by its clients and financial institutions that obtained credit reports. The breach affects approximately 143 million consumers (or 40% of the American population), giving cyber criminals an unparalleled opportunity to commit identity theft.

Equifax’s announcement comes on the heels of a federal court decision to allow a nationwide data breach class action to move forward against Yahoo. Businesses are now scrambling to protect themselves from falling prey to what has become an alarming trend of cyber-attacks on large companies in possession of consumer financial data and information. While no business can fully inoculate itself against all cyber risks, taking the following preemptive steps may minimize the likelihood that your business will become a victim.

Cybersecurity Corporate Governance is Essential

Dr. Pasteur cautioned that “Fortune favors the prepared mind.” Businesses must have appropriately tailored cybersecurity policies and procedures that establish standards for all employees—from CEOs to analysts and interns—on the use of technology and personal computers, and on the development of technology skills and behaviors to minimize inadvertently providing unauthorized persons access to personal customer data. A business can reduce risk by:

  • designating a Chief Information Security Officer who is responsible for overseeing the cybersecurity program;
  • drafting and implementing cybersecurity policies and procedures;
  • engaging in regular monitoring and testing to the business’s information systems;
  • encrypting sensitive information on all workplace computing devices;
  • limiting access to personally identifiable information (“PII”) to employees on a “need-to-know” basis;
  • instituting policies that prohibit employees from using personal email accounts for work-related emails; and
  • training employees with network log-in credentials on appropriate technology usage, as hackers often look for the weakest link in an organizational chain to enter a system.

Incident Response Planning is Key

Only businesses that have invested in preparedness will be positioned to adequately respond to cyber events. An investment in preparedness should be made well before any cyber event. Slow response to a breach only exasperates the problem and will likely provide an additional cause of action to the regulatory authority or plaintiff, as we have seen with Yahoo, which delayed disclosing its incident for three years. State data breach laws also impose tight deadlines on businesses to provide notification of a breach to affected individuals and state attorneys general.

In preparing to respond to a cyber event, a robust incident response program should be developed, rehearsed and updated. The response program should be in writing and cover a matrix of alternative responses to suspicious or irregular activity. Guidelines must be established regarding who employees should contact in the event they receive a suspicious email or telephone call asking for information, and management should mandate procedures for elevating a concern to the FBI or the applicable state attorney general. Comprehensive incident response plans may also include emergency preparedness drills for cyber incidents, which standardize the series of actions that should be taken at the onset of a potential breach. Businesses should have to rehearse their incident response protocols with the same care as running periodic fire drills.

Reconsidering Document and Information Retention Policies

Businesses need to consider how to safely manage their customers’ PII. While electronic storage makes it easy to inexpensively retain information, businesses need to assess the corresponding cybersecurity risks. In the event of a breach, the damage to customers (and by extension, to a business) will be reduced if a business makes it a practice of purging former customer PII, when appropriate and if permitted by applicable law. This approach to PII should provide the standard of care that the consumer may expect, similar to a business’ approach to other customer issues.

Third-Party Vendor Risks

Cyber risks grow exponentially when a business uses third-party vendors, so businesses need to engage in initial and ongoing diligence of vendors who handle sensitive information or have access to their network. The vendors that you should vet range from outsourced information technology providers to anyone—even a janitorial service company that has physical access to your premises, especially during after-office hours. Vendors that will routinely handle PII (for example, Equifax) should have robust cybersecurity policies and procedures in place, which you should assess and determine if they are sufficient given the risk to your PII. You can no longer assume that a vendor with a stellar reputation will not mishandle PII. Businesses should revisit their vendor agreements. Often, businesses also require vendors to provide an annual certification representing that the policies and procedures are being appropriately maintained, updated and implemented. Contractual provisions containing representations and covenants can provide some level of assurance that vendors are employing best practices, but those assurances should always be backed up by periodic audits, especially where sensitive data is being handled and stored.

Preparing for Class Action Lawsuits

Businesses that face a cyber-attack run the risk of plaintiffs’ attorneys bringing class action lawsuits following a breach even if the business is not subject to a regulatory-imposed cybersecurity standard. Businesses should prepare for a lawsuit by keeping up-to-date records of the steps taken to reduce cybersecurity risks. A business that establishes a dedicated cybersecurity committee that meets regularly will be better equipped to produce a file of meeting minutes, which can help establish to a court that the business fiduciaries took reasonable steps to mitigate cybersecurity risk. In addition to securing legal counsel that understands the business’ cybersecurity posture, businesses should consider hiring a public relations firm with experience handling the public fallout of a cyber breach.

Insurance Against Cyber Events

As the cybersecurity landscape shifts, businesses need to reevaluate cyber-attacks as an unavoidable and eventual cost of doing business. While risk mitigation is crucial, cyber insurance can help protect a business from financial devastation. Since types of coverage differ, businesses should take steps to ensure that their coverage adequately addresses their needs. For example, first-party coverage may cover the direct costs involved in recreating lost data or restoring damaged hardware. However, third-party coverage, which insures liability to third parties arising out of a business’s failure to protect PII or confidential corporate information, may also be needed. In addition to data issues, businesses should confirm that their business interruption coverage addresses ransomware attacks that can paralyze business operations.


Malicious or criminal acts can never fully be avoided, but taking the appropriate steps can minimize business disruption, reputational damage and other problems that arise following a cyber-incident, and help to reduce the remediation efforts required after the attack.

© 2017 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.