The US Federal Government recently issued an alert regarding Backoff Point-of-Sale Malware. The advisory, which was released by the DHS (Department of Homeland Security) and US-CERT (United Stated Computer Emergency Readiness Team), states the following:
This advisory was prepared in collaboration with the National Cybersecurity and Communications Integration Center (NCCIC), United States Secret Service (USSS), Financial Sector Information Sharing and Analysis Center (FS-ISAC), and Trustwave Spiderlabs, a trusted partner under contract with the USSS. The purpose of this release is to provide relevant and actionable technical indicators for network defense against the PoS malware dubbed “Backoff” which has been discovered exploiting businesses’ administrator accounts remotely and exfiltrating consumer payment data.
US-CERT, Alert (TA14-212A), Backoff Point-of-Sale Malware, Department of Homeland Security (Aug. 22, 2014 revision) (emphasis added).
DHS estimates that over 1,000 US businesses have been affected by the Backoff malware:
Over the past year, the Secret Service has responded to network intrusions at numerous businesses throughout the United States that have been impacted by the “Backoff” malware. Seven PoS system providers/vendors have confirmed that they have had multiple clients affected. Reporting continues on additional compromised locations, involving private sector entities of all sizes, and the Secret Service currently estimates that over 1,000 U.S. businesses are affected.
Id. What does that mean for affected businesses? DHS reports that the Backoff malware can compromise point-of-sale systems, with these results:
After gaining access to what was often administrator or privileged access accounts, the suspects were then able to deploy the point-of-sale (PoS) malware and subsequently exfiltrate consumer payment data via an encrypted POST request.
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The impact of a compromised PoS system can affect both the businesses and consumer by exposing customer data such as names, mailing addresses, credit/debit card numbers, phone numbers, and e-mail addresses to criminal elements. These breaches can impact a business’ brand and reputation, while consumers’ information can be used to make fraudulent purchases or risk compromise of bank accounts. It is critical to safeguard your corporate networks and web servers to prevent any unnecessary exposure to compromise or to mitigate any damage that could be occurring now.
Id. (emphasis added).
What rarely is reported for these types of incidents are liabilities that retailers potentially face to the payment card brands after cyberattacks of this nature. Those amounts can run into the millions of dollars (“Card Brand Liabilities”).
Often the most significant portion of Card Brand Liabilities are for losses due to fraudulent charges and replacing cards that had their numbers exposed. Card Brand Liabilities also may include amounts for alleged failures to maintain certain levels of computer security required by contract (so-called PCI-DSS compliance).1 The amounts owed for alleged fraudulent charges and replacement of compromised credit cards often dwarfs the amounts of fines for alleged PCI non-compliance.2 Some incidents that involved more than 1 million allegedly exposed card numbers have resulted in Card Brand Liabilities in the millions of dollars.3 When viewing Card Brand Liabilities as a big picture question, the total amounts can be viewed as a multiplier based on the number of cards exposed, with some retailers suffering liabilities of approximately $2-3 per allegedly exposed card number.4 Target Corporation has disclosed that “[i]n the fourth quarter of 2013,” it had accrued “$61 million of pretax Data Breach-related expenses,” including “an accrual related to the expected payment of payment card networks’ claims by reason of the Data Breach.”5
Would your insurance policy cover those amounts? Insureds should read their “cyberinsurance” policies very closely. Without commenting on the correctness of the position, consider that one underwriter has written the following, with emphasis added:6
Many policy forms in the marketplace directly exclude contractual indemnities and liability, including that which stems from merchant service agreements. Some policy forms initially grant coverage for breach of contract claims, but then add exclusions concerning key components of this coverage. In addition, some policy forms exclude breach of contract claims with some very narrow carvebacks to the exclusionary wording that may not help the insured much in the event of a payment card breach.
Although most privacy/security insurance policies grant the insured coverage for situations in which they need to incur the first-party costs to notify individuals and extend insureds credit monitoring services, not all will directly respond to the breach of, or the indemnities contained in, a merchant services agreement.
Are you sure as to how your insurance would apply to card numbers stolen, published, and/or exfiltrated by the Backoff virus? Perhaps now is the time to review your insurance policies to better understand the potential for coverage, in light of this widespread risk. Amounts owed to the card brands from incidents like this can run into the millions of dollars, and obtaining insurance coverage for these losses may be crucial.