On February 28, 2014, in Resnick et al. v. AvMed Inc., a Florida federal judge gave final approval to a groundbreaking settlement agreement in a data breach class action lawsuit. The settlement for the first time provides for payments to all victims of a data breach, including those who have not suffered monetary losses due to actual identity theft.
This dispute arose in a 2010 putative class action lawsuit that was filed following the 2009 theft of two unencrypted laptops from an AvMed facility in Gainesville, FL. Data contained on the laptops included the personal information of approximately 1.2 million current and former AvMed customers. The plaintiffs in AvMed claimed that the company failed to properly secure their personal information, which resulted in overpayment for insurance coverage by all affected customers and the theft of some affected customers’ identities. The plaintiffs sought to represent all customers whose sensitive information was stored on the stolen laptops as well as a subclass of individuals whose identities have been stolen since the laptop theft.
A district court dismissed the action twice, due in part to failure to state a cognizable injury resulting from the theft of the unencrypted laptops. On appeal, the Eleventh Circuit found that the plaintiffs had sufficiently pled a cognizable injury for the majority of their claims. Notably, the court found that the plaintiffs had sufficiently pled a claim for unjust enrichment by alleging that the plaintiffs conferred a monetary benefit on AvMed in the form of monthly premiums, which AvMed used to pay for the administrative costs of data management and security, and that AvMed failed to implement adequate data management and security measures that are mandated by industry standards.
The appellate court’s recognition of the plaintiffs’ unjust enrichment claim is particularly important because it provided a basis upon which payments could be made to class members who had not suffered actual identity theft in the settlement agreement subsequently reached by the parties.
Under the terms of the settlement agreement, AvMed agreed to establish a $3 million settlement fund and to implement additional security protocols to protect its customers’ data. What makes the settlement groundbreaking, however, is that it is the first known settlement to provide for compensation to victims of a data breach without requiring them to show they suffered any actual economic loss from the theft of their personal data.
According to the terms of the agreement, customers whose information was on the stolen laptops can receive up to $10 for each year they paid AvMed for insurance before the 2009 breach, up to a $30 cap. This payment is based on a theory of unjust enrichment and is intended to reimburse customers for the portion of their monthly premium that was supposed to be used by AvMed to safeguard their data, regardless of whether they were victims of identity theft. Those class members who also suffered identify theft will be able to make additional claims to recover losses that can be shown to have occurred “more likely than not” as a result of the December 2009 breach. The settlement fund also provides for a payment of $750,000 to class counsel.
Additionally, AvMed agreed to implement a number of security improvements, including:
- Mandatory security awareness and training for all employees
- Additional security training for all employees whose responsibilities include accessing information stored on company laptops
- Upgrading company computers with additional security mechanisms, including GPS tracking technology
- New password protocols and full-disk encryption technology on all company computers
- Physical security upgrades at company facilities and offices
- Review and revision of written policies and procedures to enhance information security.
While litigation often follows data breaches, such cases have typically been dismissed at the pleading stage for lack of either standing or a cognizable injury. Following AvMed, data breach plaintiffs have a road map, at least in the Eleventh Circuit, for surviving a motion to dismiss. Additionally, the novel settlement agreement may establish a precedent for monetary payments to victims of a data breach who are unable to prove unauthorized use of their personal information, which has traditionally been a bar to recovery.
AvMed is part of a small but growing line of cases in which plaintiffs are using creative theories of liability to overcome the problems that have plagued earlier data breach class actions. In the wake of AvMed and others, businesses should be aware of the potential for increased liability and litigation costs as a result of consumer privacy and data breach litigation.
Businesses should also remember that strong security programs continue to be the best defense against data breaches and potential data breach class action lawsuits. For example, in AvMed, the case might have been avoided if the stolen laptops had been encrypted. It is imperative that businesses of all sizes implement a comprehensive data protection plan that safeguards personal information and includes continual training and education.