Paul Paray comments on the recent ruling in California involving statutory damages under the CMIA in the event of a breach:
Insurers providing privacy liability coverage were collectively breathing a sigh of relief last week given a decision from the California Court of Appeals. Interpreting the California Medical Information Act (CMIA), the court in Regents of the Univ. of Cal. v. Superior Court of Los Angeles County, No. B249148 (Cal. Ct. App. October 15, 2013) significantly limited the ability of plaintiffs to obtain nominal statutory damages of $1,000 per patient under CMIA. For the past several years, CMIA was pretty much the best game in town when it came to statutory damages involving a data breach. Although enacted in 2008, CMIA was only over the past several years successfully used by plaintiffs’ counsel to obtain settlements previously unattainable post-breach. The CMIA “statutory damages” bonanza reaped by class counsel was significant – the prospect of such damages allowed counsel to overcome Article III and other “lack of injury” arguments, potentially allowed for class certification even with an otherwise uneven plaintiff pool, and created an early incentive to settle on the part of a defendant – and its insurer – given the potential size of an award.
It is no surprise CMIA was the bane of a good number of network security and privacy insurers – it led to significant settlements that would not have otherwise occurred. The Regents decision is noteworthy given it was the first appellate court to decide the availability of CMIA statutory damages and rejected the notion that mere negligence coupled with disclosure could trigger statutory damages. This is a significant departure from how the law was interpreted by the lower courts and instantly dried up a good part of the statutory damages manna drunk by the plaintiffs’ bar.
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