How Companies Try To Avoid Liability for Data Breaches
When you share your personal data, you should be able to trust that it is safe. While organizations are legally obligated to protect sensitive consumer data, some attempt to shield themselves from liability with various legal and business tactics.
At Class Action U, we are dedicated to holding corporations accountable for their failures to safeguard consumers’ personal data. This guide discusses how companies try to avoid liability for data breaches so that consumers can recognize these tactics and stand up for their rights.
Common Strategies Companies Use To Avoid Liability in Data Breach Cases
When a data breach occurs, companies tend to prioritize their bottom line. Legal liability can cost millions, especially when it affects many consumers. To defend their profits, companies have developed various strategies to limit losses connected to a data breach.
Limiting Liability Through User Agreements and Contracts
Companies that collect consumer data often have limitations of liability clauses in their privacy policies or terms of service statements. These clauses cap what consumers can recover following a breach, often by setting a maximum recoverable amount or excluding certain types of claims. For example, some organizations exclude indirect or secondary damages without explicitly connecting them to the breach.
A similar strategy is the use of a waiver or arbitration clause. Waivers restrict consumers from suing the company in select circumstances, while arbitration clauses allow for dispute resolution via an assigned impartial third party, rather than in a courtroom.
These clauses are often buried in fine print, making it difficult for consumers to fully understand the implications of their agreement.
Cybersecurity Measures To Demonstrate Due Diligence
Measures like encryption, multi-factor authentication, and regular security audits are all standard best practices for protecting sensitive consumer data. Companies invest in these measures to demonstrate that they follow standard practices.
When a breach occurs, companies often argue that sophisticated cyberattacks can bypass even the strongest security measures. They may even claim that the attack succeeded despite their best efforts.
Third-Party Vendor Contracts
Some organizations use named third-party vendors to manage consumer data. Contracts with these vendors often include indemnity clauses, which transfer risks to a named party.
This effectively shields the company from financial responsibility if a data breach occurs because the named party agrees to shoulder costs associated with a specific type of dispute, such as a data breach lawsuit. A company may use these clauses to avoid liability in cases involving the contracted provider.
Arguing No Harm or Financial Damage
A data breach lawsuit requires proof of financial or emotional damage. If a company cannot shift the blame for a breach, its attorneys may claim that affected consumers suffered no measurable harm. They try to assert that while the attack compromised consumer data, there was no evidence of identity theft or financial loss.
By arguing that no harm was done, the company directly challenges the grounds for compensation. If successful, a court may dismiss the lawsuit.
Seeking Early Settlement To Avoid Class Action
If the breach affected a large number of consumers, those affected may decide to file a class action lawsuit. Class actions are costly for companies, and the bad publicity can significantly damage their reputations. To avoid these risks, companies may seek to settle early.
Although early settlements can prevent prolonged legal battles and negative media coverage for the company, they also limit the scope of the settlement, which often means a reduced payout for claimants.
Are Companies Held Accountable for Data Breaches?
Companies are accountable for data breaches if evidence shows they were negligent in protecting consumer data. This negligence can result in significant financial and reputational damage for the company.
Consumers may file individual or class action lawsuits to claim compensation. State and federal regulatory bodies, including the Federal Trade Commission and state attorneys general, may also impose fines or other penalties. These regulatory actions also push companies to improve their data protection practices to avoid being penalized in the future.
Consumer Protection Laws and Liability
Multiple laws hold companies accountable for exposing consumer data. While the U.S. does not have federal rules for data privacy, state-specific rules often apply.
For example, the California Consumer Privacy Act lets consumers sue if a breach exposes their last names and other identifying information, such as a Social Security or driver’s license number.
Companies with customers in the European Union must also comply with the General Data Protection Regulation, which requires them to implement specific data protection controls and imposes a 72-hour deadline for reporting breaches.
Breach of Contractual Obligations
Companies that collect personal information may include data protection responsibilities in their consumer contracts. If a digital attack affects one of these companies, its customers may have grounds for a breach-of-contract lawsuit.
In a breach-of-contract lawsuit, you may succeed if you prove that the company failed to fulfill its obligations as stated in the contract.
Liability for Failure To Meet Industry Standards
Many industries, including health care and finance, deal with sensitive consumer data every day, and they often have strict data protection and privacy rules.
For example, the Payment Card Industry Data Security Standard requires companies that process payments to follow specific encryption and software security guidelines. Other industry-specific data privacy rules include the Health Insurance Portability and Accountability Act, which protects “individually identifiable health information,” and the Gramm-Leach-bliley Act, which requires organizations to protect consumer financial data.
Failure to adhere to these industry standards can result in legal action, hefty fines, and long-lasting damage to the organization’s credibility.
Accountability in the Event of Negligence
Negligence is a key factor in identifying liability for a data breach. If evidence shows a company treated data recklessly or failed to implement basic security protocols, the organization may face regulatory penalties and consumer lawsuits.
To avoid liability, the company may attempt to present evidence that it completed due diligence and took reasonable steps to protect customers’ sensitive information.
Class Action Lawsuits
If a data breach affected many people similarly, those victims may decide to start a class action lawsuit and sue the organization that should have protected their data. Class action lawsuits can hold companies accountable for breach-related damages, including credit monitoring, identity protection, legal fees, and other expenses.
Some class action lawsuits also involve punitive damages, which are penalties for extreme negligence.
Consumers can join a class action lawsuit by submitting relevant information, which varies based on the breach and case circumstances.
How Much Can You Sue for After a Data Breach?
Available compensation for a data breach depends on the legal jurisdiction and whether the lawsuit is a class action or an individual claim. Large class action lawsuits can cost companies hundreds of millions or more.
For example, in July of 2024, Meta agreed to a $1.4 billion settlement involving the non-consensual capture of consumers’ biometric data, including facial scans. Seven-figure payouts are also common, as in the recent lawsuits against genetic testing firm 23andMe and hotel chain Marriott.
Smaller settlements and verdicts are possible, although they may not make the mainstream news. One standout example involves Long Island’s Personal Touch Holding Corporation, which settled with the New York Attorney General for $350,000.
Are Data Breach Settlements Taxable?
Some types of data breach damages are taxable, while others are not. Compensation for medical bills, property damage, and emotional distress is typically non-taxable because it represents direct losses. Damages that count as new income, including lost wages and punitive damages, may be taxable.
Factors Affecting Compensation in a Data Breach Lawsuit
Damages in a data breach lawsuit depend on several factors, mainly related to the circumstances of the incident. Victims may receive different amounts based on the severity of the breach, the amount they lost, and the company’s response.
Severity of the Breach
The scale and type of the breach can influence consumer compensation. A breach that involves extremely sensitive data, such as Social Security numbers or medical records, may qualify plaintiffs for higher compensation.
Actual Harm Suffered
Victims who experience more significant losses may be eligible to claim more from a class action settlement.
For instance, 23andMe’s $30 million settlement included up to $10,000 for individual consumers who can claim “extraordinary losses” as a direct result of the breach. These include costs related to falsified tax returns and identity fraud. Less heavily impacted consumers could receive up to $100.
Company Negligence
A more serious level of negligence may translate to higher damages in a data breach case. Consumers may be entitled to higher compensation if the company fell significantly short of best practices. Examples may include using software with below-standard security or neglecting to notify consumers promptly.
State Laws
Several states have guidelines for data breach compensation, including laws on the damages a victim can claim. The amount you can receive in a data breach lawsuit may vary based on your jurisdiction and whether you have an individual or class action lawsuit.
If a data breach has exposed your personal information, it’s essential to work with an experienced attorney familiar with your state’s laws.
Why a Data Breach Lawyer Is Important for Maximizing Compensation
Data breach lawsuits can be complex and challenging to navigate without in-depth knowledge. An experienced data breach lawyer may improve your chances of a positive outcome and help you seek higher compensation.
Expert Knowledge of Data Breach Laws
A skilled data breach attorney understands the state and federal laws surrounding data breaches. They can navigate the intricacies of the legal system and draw on knowledge of previous data breach cases to develop an informed strategy. This experience helps them to seek maximum compensation in a data breach case.
Ability To Prove Harm and Losses
A lawyer has the experience to identify and quantify losses related to a data breach. These include tangible costs, such as stolen money and the costs of security services, as well as intangible harm, including emotional distress and reputational damage.
Knowledgeable attorneys can source and analyze the evidence necessary to support these claims of harm. Documentation is essential for proving losses and may include financial records, medical reports, and invoices from identity protection services.
Negotiating With Insurance Companies
Corporations and their insurance companies are motivated to reduce their losses. Victims need an attorney who is just as skilled and able to negotiate a fair settlement on their behalf.
Experienced data breach attorneys know companies’ tactics to limit liability and reduce compensation. They have the experience and clout to push back against low offers and argue for the compensation you deserve. Comfortable in the negotiation room and experienced in handling complex settlement discussions, they help you avoid unfair settlements.
Representation in Court (If Necessary)
Many data breach lawsuits settle out of court, but sometimes a trial is essential to getting a fair settlement. Your data breach attorney is there to argue on your behalf and convince the court to compensate you for your losses.
Speak to a Data Breach Lawyer
At Class Action U, we understand how vulnerable a data breach can make you feel. We are committed to empowering consumers with resources on what to do after a breach, including how to connect with an attorney.
We are committed to supporting victims of data breaches to recover the compensation they deserve. Our team connects you with experienced lawyers who will fight for your rights and ensure your case is handled with the utmost care and attention. If a data breach has recently affected you and your family, contact us today. We’ll help you stand up for your rights.
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