The Curse of the Black Adder
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
One Fine Fall Day
Aaron Scott watched with pride as his German shorthaired pointer Sadie bulled her way through the switchgrass. Sadie was six, an age when most hunting dogs started to show signs of aging. But Sadie was as heavy in the chest and shoulders as some males, and just as tough.
Then suddenly Sadie was on point, her stub of a tail twitching frenetically. Seconds later, the male bird exploded out of the brush. Aaron swung his grandfather’s over and under Remington up and dropped the bird cleanly. Aaron smiled. It didn’t get any better than this.
Then his phone rang. He had to get it. As the CFO for Pinecrest Food Markets, which had 44 stores in four states, it was part of his job to take calls, all calls.
“This is Aaron,” he said.
“Aaron, it’s Christine.” Christine was Aaron’s older sister and the CEO of the company. Aaron knew that tone in her voice. The news wasn’t good.
“We just got a letter from Spendex that they’ve been hit by malware. It looks like we may have lost credit card numbers for about 600,000 customers.”
Aaron paused and again looked at the scenery and savored the diminishing scent of spent gunpowder. He wished he could turn back the clock to one minute ago, but all that was gone.
“You there?” Christine said.
“I’m here,” Aaron said.
“Can you please get those dogs in the truck and get back to the office? We got work to do.”
Christine preferred jumping horses to bird-hunting. On a fox hunt, she could ride with anyone in the state.
Aaron loved his sister, but he also bore a scar over his right eyebrow where she’d clocked him with a rock when they were preteens.
“I’m comin’. Be there in 30,” Aaron said.
Pinecrest had been founded by Aaron’s grandfather William in an 800-square-foot shop in Johnstown, Pa. It had grown to where it had stores in eastern Ohio, its native western Pennsylvania, West Virginia and the Maryland panhandle.
Aaron and Christine ran it now. The phrase “three generations — shirt sleeves to shirt sleeves,” was how old-timers described how quickly an inherited family business could fall apart. Aaron and Christine had vowed they would prove that old saying wrong.
Back at the office, Aaron read the letter from the credit card transaction processing vendor Spendex. Spendex was reporting that as many as 26 of its regional retail customers lost credit card numbers to The Black Adder, a malware that strips names, credit card numbers and expiration dates from the magnetic stripes of credit cards.
“Now what?” said Christine.
“Well, we’ve got to tell every affected customer what happened and we need to do it soon,” Aaron said.
“How much is that going to cost?” Christine said.
“Quite a bit, but we’ve got insurance for it,” Aaron said as calmly as he could as he looked down at his iPhone and started scrolling through his contacts.
Aaron was playing possum with his cool tone. He was the family peacekeeper and he knew that his role at times like these was to keep a lid on the much more volatile Christine.
Christine exhaled, and Aaron kept his eyes on his iPhone.
Part of the Pinecrest brand came from where it was based and who founded it.
Based as it was in a state that was home to almost a million military veterans, Pinecrest aligned itself with traditional values like patriotism, community, faith and family.
There was a picture of a local veteran who had given his life in armed conflict in every Pinecrest store.
So when it came to the data breach notification, Christine Scott — in what she felt was full alignment with the brand — didn’t shrink from responsibility.
In addition to letters and emails sent to Pinecrest’s 600,000 affected customers, Christine called local news stations to broadcast news of the breach and her promises to make good. She didn’t bother to ask Aaron whether he thought that was a good idea.
“Every one of our customers will be reimbursed for their time and trouble, including a year’s worth of multi-bureau credit monitoring services,” Christine said while the TV cameras recorded her.
“Well that’s what the policy says, doesn’t it?” Christine said when Aaron told her later that she probably shouldn’t have said that on television.
The very next day, a phone call from Pinecrest’s insurance broker was the second bad call Aaron got that month.
“Multi-bureau? No. The policy will cover services from a single credit monitoring bureau,” the broker, Robert Franz, told Aaron.
As Aaron spoke with Robert, he was multitasking and monitoring his emails. He saw an email marked “urgent” from Spendex. It was about the data breach.
“Hey Robert, can I call you back in a few minutes? I’ve got something hopping here,” Aaron said.
“Sure,“ Robert said, but in a tone that implied, “What could be more important than this?”
As it turned out, the email from Spendex was plenty important.
The notice from Spendex explained that although it was obligated to inform all of its customers that there had been a breach, in reality, only 14 of its 26 retail customers had been impacted. The clincher? Pinecrest wasn’t one of them.
Aaron pushed back from his desk and ran his hands through his hair.
“What the … ?” he said as loudly as he would say anything.
“What is it?” said Christine, popping her head into his office. She knew from the volume of Aaron’s voice that it was something big.
“We didn’t lose any data. We didn’t lose any data at all,” Aaron said.
“Great,” Christine said.
“No, not great,” Aaron said. “We just told about a million people that we did.”
“Now what do we do?” Christine asked.
Aaron felt that Christine had burned him before by going on television without seeking his counsel. That experience caused him to dig in his heels with Christine over what to do next.
“Slow down, just slow down,” Aaron said when the siblings met to go over strategy.
“I don’t know that we need to come out with an announcement just yet.”
Aaron’s reaction to his sister’s outspokenness had caused him to miscalculate. A full week went by until Pinecrest announced on its website and with another email blast that its customers had, after all, not been impacted by the Black Adder strike.
The company’s pause in making that announcement was as toxic as a rattlesnake bite.
The local media reacted negatively to the company’s week-long silence. News that the company sat on the knowledge that customers hadn’t lost data made the front pages of the Johnstown Tribune-Democrat and the Wheeling News-Register.
For the first time in its history, Pinecrest was dealing with the full brunt of a hit to its reputation.
The traditional print media was one thing, and no small thing in the markets Pinecrest served. But online commentary, ungoverned by journalistic ethics, pulled no punches. Commentators ridiculed the company for banking on the military sacrifices of previous generations, when it “didn’t have the guts,” in one poster’s vernacular, to tell people the truth.
The company’s broker, Robert Franz, phoned Aaron with even more bad news.
“You’re not covered for any of your breach notification expenses, or for any credit monitoring services,” Robert told Aaron.
“Please tell me why,” Aaron said, keeping his voice low because he was just not in the mood for any spontaneous crisis communications with his older sister.
“Under your policy, you’re only covered for notification and credit monitoring if there was an actual breach,” Robert said.
“No breach, no coverage,” he said.
“So we’re out about a million dollars,” Aaron said flatly. In the regional grocery business, where margins could sometimes be measured in the low single digits, a million dollars was a very big hit.
“I’m afraid so,” Robert said.
Sales at Pinecrest Food Markets were down around 10 percent in all four states that it operated in.
“Might as well shop at Supermart,”a grizzled Korean War veteran told Channel 11 in Charles Town, West Virginia.
With the company down a million out of pocket and with revenue hamstrung, Christine Scott and the rest of the Pinecrest team had some very difficult and expensive decisions to make.
Should they sue Spendex for its shoddy forensics? And what coverage did they have for the costs of that?
Rumors began to circulate in several state capitals that class action lawsuits were being prepared on behalf of the tens of thousands of Pinecrest customers who felt they were caused needless expense and worry because of the bad information Pinecrest put out to begin with.
Grandstanding attorneys general were probably not far behind. Pinecrest was possibly facing legal action on several fronts and it was unclear whether it had the coverage to pay for its defense.
With the world seemingly against them, Christine and Aaron took a day in late November and went to their grandfather’s hunting cabin in Somerset County.
The grouse were out there, but the two of them just sat staring at the fire in the cabin’s stone fireplace, with Aaron’s two bird dogs stretched out in front of the fireplace.
Sadie looked up hopefully as Aaron got up to throw another log on the fire.
“No huntin’ today, Sadie girl. Daddy is not in the mood,” Aaron said as Christine nursed a bottle of local craft-distilled rye.
“May I have some of that, please?” Aaron asked.
“Get your own bottle,” said Christine.
A regional grocery chain gets into hot water after it loses customer financial data. Making matters worse is that the company does not have a good grasp on the language in its cyber coverage policy. The company also suffers reputational damage when it notifies customers based on bad information.
1. Know your partners: Pinecrest sees its problems go from bad to worse because the company it uses to process credit card transactions has shoddy forensics and reports data breaches for customers that in the end had no data breach.
2. Know your coverage: Pinecrest suffers needless losses because key executives don’t understand its insurance policy when it comes to services available under the coverage for data breach notification and credit monitoring.
3. Be as transparent as possible: When it comes to notifying customers of substantial issues that could impact their expenditures, getting out quickly with the best information is extremely important. Pinecrest actually has good news to report midway through this story, but sits on it due to internal friction. The good of the team must clearly win out here.
4. Create realistic expectations: Coverage existed for Pinecrest officials to put together a reasonable response when customer data was lost. But a key executive broadcast inflated statements about what Pinecrest would be able to do, creating equally inflated expectations.
5. Hold vendors accountable: Given the volatile expansion of cyber risk, it makes good sense to require vendors contractually to indemnify you if they lose your crucial customer data.
The issues covered in this scenario center around crisis management and insurance pitfalls associated with loss from a cyber breach. This follow-up webinar focused on specific loss trends and cyber exposures, as well as presented steps to take to strengthen your crisis risk management program.
Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.
The scenario begins with the brief video below:
It’s five weeks since the day Reggie first felt that twinge in his knee. The pain is still not so great that Reggie can’t live with it, but he’s getting a little tired of it.
After work one day, Reggie is having beers with Smitty Cheeks, one of the company’s mid to long-range truckers, who’s done driving for the week and will be spending the weekend in Memphis.
Smitty and Reggie are engaged in game of 8-Ball at their local blues and barbecue joint. Smitty slams the 8 ball into the corner pocket, winning the game.
“My game,” says Smitty.
Reggie eyes the waitress delivering food to their nearby booth.
“Good thing,” Reggie says. “ ’Cause our food is here.”
The two are tearing into some serious barbecue when Reggie notices Smitty pulling a pill from a vial in his pocket. Reggie’s already had a couple of beers, which makes him a little bolder.
“Watcha’ got there partner?” Reggie says.
“Vicodin,” Smitty says.
“My back’s a mess and I’ve been taking these Vicodins for a while. They help a good deal. Probably not best to drink and use these, but hey, whatever gets you through the night,” Smitty says with a beery wink.
Reggie pauses and then blurts out.
“Could you hook me up with a few of those? I’ve been having some aches and pains myself.”
Smitty pauses, then very efficiently strips the smoked meat off of a turkey wing.
“I can get you all you need buddy and the price is right,” he says, his lips smeared with barbecue sauce and this time not smiling.
The next day, Reggie, whose become more inactive and out of condition since his knee injury, is coming out of the bathroom at home with a towel around his waist.
He’s limping worse than he has been recently. The knee has begun to lock on occasion and feels like it might be giving out. His wife Arlene addresses him.
“When are you going to see a doctor?” she says to him with a worried expression on her face.
“I really don’t know,” says Reggie.
“I really think you should,” she says. “You don’t know what’s going on there and you should at least get it checked out.”
Reggie pauses, embarrassed. Arlene is looking at him compassionately and it softens his defenses.
“I tweaked my knee at work a while back. Tell you what, I’ll tell my boss on Monday and go see somebody.”
“Good,” Arlene says. “You don’t want to go too long before figuring out what’s up.”
Reggie tells his supervisor about his injury. Reggie’s injury is in turn reported to the company’s insurance carrier. But neither the claims adjuster or the employer discuss the idea of Reggie being offered modified duty.
Reggie is referred to an in-network physician, an occupational medicine specialist. The Occ-Med prescribes an anti-inflammatory for Reggie. He also orders an MRI for him and gives him a prescription for four sessions of Physical Therapy and orders him a hinge knee brace, due to the “giving out” feeling Reggie has reported in his knee.
The Occ-Med specialist gets the MRI results, which reveals a tear. Without calling Reggie into have another look at him or gauge how he’s done in therapy, the Occ-Med refers Reggie to an orthopedic surgeon.
Reggie is in the surgeon’s office looking at the MRI results with the surgeon when he gets the news.
“The MRI scan reveals a 4 mm acute medial meniscus tear, Reggie,” the surgeon says.
“We’re going to want to repair this,” he continues.
“You mean surgery?”
“Yes. I don’t want to let this sort of thing go in a man your age,” the surgeon says, patting Reggie on the shoulder compassionately.
Mollified by the surgeon’s kindly tone, Reggie doesn’t question the decision or seek a second opinion.
Reggie doesn’t think to ask about a less invasive approach, like more physical therapy, and the surgeon doesn’t bring it up. The surgeon puts in a request for surgery, which is approved by the adjustor with no follow up or questioning as to its necessity.
Reggie undergoes preauthorized, minor arthroscopic surgery and is initially given six weeks off of work under the direction of the surgeon.
The carrier’s claims adjustor makes a note of the surgery but doesn’t contact the employer or Reggie to check in on his condition.
“It’s a pretty minor procedure,” she tells herself while alternating between looking at her computer monitor, where the details of Reggie’s case are displayed, and checking her cell phone.
Then her phone rings.
“This is Janice,” she says, and clicks to another screen on her computer. Reggie’s case is out of sight, out of mind.
No one from Reggie’s company checks in with him to discuss the future possibility of modified duty or to check on his overall welfare.
The Wheels Come Off
It’s one week post-op and Reggie pays a visit to the surgeon for a wound check.
“Let’s have a look here,” the surgeon says, gently peeling off the adhesive bandage.
“Looking good,” he says.
“Good,” Reggie says.
The surgeon swabs Reggie’s knee with some antiseptic and distracts Reggie as he pulls out the sutures with a discussion about planning for the way forward.
“So, I’m going to give you a prescription for therapy. I want to see you do at least 12 visits to work on regaining full range of motion in the knee and getting your strength back.”
“Got it,” said Reggie.
“How’s your pain?” the surgeon says.
“It hurts, no doubt,” Reggie said.
“Well let me know if you need more pain medication,” the surgeon says.
“I just might do that,” Reggie says before gingerly slipping down from the table.
It’s a week later and Reggie is sitting on the couch at home with the channel changer in his hand and his leg up.
Reggie checks his iPhone, scanning his e-mail inbox.
“Have you heard anything about your physical therapy appointment?” Arlene says from the kitchen where’s she’s pouring some tea for her and Reggie.
“Nothing,” Reggie says.
“I think I’m going to call them,” she says. “We need to get you into physical therapy.”
“Go ahead. I doubt they’ll call you back,” Reggie says. He’s not out of it but his manner is resigned and sluggish.
“It hasn’t been approved or processed yet by the insurance company.”
“Has anybody from your company ever contacted you?” Arlene says.
“Nope. But I’m still getting my workers’ comp checks, I guess I can be thankful for that,” Reggie says.
Reggie palms a pain pill from a vial and swallows it with a sip of water. Arlene can’t see him do this from her vantage point in the kitchen.
“I don’t like it, they should be in touch,” Arlene says.
“You’re probably right,” Reggie says, over his shoulder, taking a break from look at the television.
It’s another week before Reggie gets into therapy. The therapist greets Reggie as he’s ushered into the treatment area.
“Hi, I’m Maggie,” the therapist says. “Come on over to this table and lie down. I want to put some electrical stimulation on your knee and then we’ll get to work on it a little bit.”
Reggie walks over to the table, limping noticeably.
“You had surgery when?” Maggie the therapist says.
“Three weeks ago,” Reggie says.
“Hmmm, you’re late getting in here,” the therapist says.
“After we get through our work here today, I’m going to give you some home exercises to help you get caught up. We need to keep this knee moving and build your strength back up,” she says.
We cut forward to see the therapist working on Reggie’s knee. She flexes the knee slightly and Reggie almost jumps off of the table.
“This joint is stiff,” the therapist says.
“It sure is,” Reggie says.
Reggie’s reacting to the pain and eyes the therapist warily.
Reggie’s back at home and back in front of the television set. This time he’s got the pain medication bottle out in full view.
Arlene comes in carrying some groceries.
“Have you done your therapy exercises today?” she says.
“Not yet,” Reggie says.
She eyes the vial of pills on the table next to Reggie.
“I thought you were done with those,” she says.
“I’m not taking that many of them,” Reggie says. “And I did move. I went to the bathroom.”
Arlene just looks at him. She’s concerned but clearly doesn’t want to start an argument.
Without another word, Arlene heads to the kitchen with the groceries.
It’s five weeks since Reggie’s last visit to the orthopedic specialist and he uses a cane to get into the examination room. The use of the cane was approved by the adjustor.
The surgeon enters the room and sees the cane propped next to Reggie as Reggie sits on the examination table.
The surgeon is very alarmed.
“What’s the cane for?” he says. “I didn’t order you one.”
“I need it to walk,” Reggie says. “My knee’s still killing me and it’s hard to move it.”
“Where’d you get it, the cane?” the surgeon says, clearly disturbed.
“The therapist gave it to me,” Reggie says.
The surgeon quickly scans his electronic pad, looking for the report from the therapist.
“You had six visits. You were late getting in there but you had six visits. Although you should have had 12,” the doctor says, not quite panicking but clearly unnerved.
“You should have been going twice a week.”
Reggie ignores him.
“You said I could have more pain pills if I needed them, right?”
“What?” the doctor says, jarred that Reggie is ignoring him and taking up another subject.
“Yes I said that but I didn’t think you’d…” the doctor says before Reggie interrupts him.
“I’m gonna’ need more pain pills,” Reggie says with an edge.
The doctor says nothing. He’s at a loss.
“Doctor, I want more pain pills,” Reggie says.
This scenario was originally presented at the 2015 National Workers’ Compensation and Disability Conference in Las Vegas.
As part of the discussion, panelists discussed key aspects presented in the scenario.
Panelists included Dr. Robert Goldberg, chief medical officer, Healthesystems; and Dr. Jeffrey Sugar, Associate Medical Director, Sharp Rees-Stealy Medical Group. The session was moderated by Tracey Davanport, director, National Managed Care, Argo Group.
Insights from their discussion are highlighted below:
To Keep Cool in a Crisis, Companies Need a Comprehensive Solution
Threats against corporate security come in many forms, from intentional acts of violence to civil unrest to cyber-attacks. The perpetrators don’t discriminate by company size or sector, and the consequences can range from several thousand dollars lost to several lives lost.
The recent shooting in an Orlando nightclub that killed 49, for example, or last year’s San Bernardino shooting that killed 14, are somber reminders that terrorism and violence can erupt anywhere and in any type of business. In addition to loss of life, violence can translate into business interruption and property damage. In Ferguson, Mo., riots lead to over $4 million in property damage.
Cyber-attacks have also become commonplace, with hackers infiltrating private networks to steal data or hold it ransom.
Is your organization prepared for these risks?
“A lot of companies have a crisis response plan on paper, but they don’t have outside resources to come to their aid if there is an incident,” said Reggie Gibbs, Underwriter and Product Manager, Starr Companies.
Mid-size companies especially tend to lack comprehensive insurance coverage and crisis management services for a variety of security events due either to limited resources or an underestimation of their exposure.
Starr Companies’ Cyber and Terror Response (CTR) solution provides three coverages as well as crisis response services tailored to meet the needs of these companies. Each of its components addresses a common security threat.
“We don’t just want to indemnify the security risks our clients face; we want to help them actively manage them.”
— Reggie Gibbs, Underwriter & Product Manager, Starr Companies
Terror and Political Violence
“Political violence can be defined as a strike, riot, protest, or any type of unrest that gets out of hand and turns violent,” said Gibbs, who specializes in terrorism and political violence, workplace violence, and crisis management.
In the case of the Ferguson protests, any first party property damage or third party liability incurred by the disruption would be covered under the terrorism and political violence segment of the CTR solution.
In the case of a terror attack, organizations cannot necessarily rely on TRIA to pick up property losses. In the case of the Orlando shooting, for example, the likelihood of TRIA being invoked is low because property damage will not meet the threshold for coverage to kick in.
TRIA, reauthorized in 2015, provides a federal insurance backstop in the event of a terror attack. The U.S. Secretary of the Treasury, U.S. Attorney General, and U.S. Secretary of Homeland Security must declare an attack to be an act of terrorism, and property damage must exceed $5 million to trigger TRIA.
“We would still view the Orlando shooting as an act of terror, however, because of who the shooter claimed he was working for regardless if the ties to terror groups are clear or not. Therefore, our coverage would apply,” Gibbs said. Even if TRIA was enacted, however, companies would still have a lot of pieces to pick up following an attack. They may have injured or deceased employees, or face legal action from third parties.
For these situations, and any other incident of violence not driven by terrorism, the workplace violence component of Starr’s CTR solution would act as an umbrella to cover other liabilities such as legal liability, loss of life benefits, psychiatric care, and other crisis response services.
One such incident struck a Boston-area Bertucci’s in early May. An attacker wielding a knife drove his car into a Boston shopping mall before making his way into the nearby restaurant. He killed five, including restaurant workers and patrons.
“There was no ideological or political motivation behind it. He was just deranged.” Gibbs said. “Our workplace violence coverage can handle the loss of life benefits for both the employees and patrons killed in situations like this one.”
In the best cases, though, violence can be prevented altogether.
“If an employee reports a stalking threat, the policy would cover the expense of security guards,” Gibbs said. “In this case, it’s more of a pre-workplace violence coverage. It would de-escalate the situation.”
Attacks can also be non-physical.
Cyber extortion in particular is on the rise. Phishing scams lead employees to click on malicious links, unknowingly downloading ransomware onto their internal networks. The cyber criminals then hold companies’ networks ransom, asking for a sum of money in return for the release of data or to prevent a business interruption. The ransoms can be low — amounts that organizations can afford to pay.
“The hackers don’t want to attract the attention of law enforcement or regulatory agencies,” said Annamaria Landaverde, National Cyber Practice Leader & Professional Liability Underwriting Manager, Starr Companies. Landaverde specializes in the cyber component of the CTR coverage. “The FBI may not get involved if someone asks for $5,000. They are more likely to get involved if someone asks for $5 million.”
Since companies are not required by law to report cyber extortion —like they are for data breaches — many choose simply to pay the ransom and move on without generating any negative news headlines.
“The hackers don’t want to attract the attention of any law enforcement or regulatory agencies. The F.B.I. won’t get involved if someone asks for $5,000. They will get involved if someone asks for $5 million.”
— Annamaria Landaverde, National Cyber Practice Leader & Underwriting Manager, Professional Liability Division, Starr Companies
“A California medical center recently had an incident like this where the hackers asked for $17,000 in ransom,” Landaverde said,” but the amounts can vary.”
While the ransom itself may seem manageable, many companies fail to recognize other costs associated with the identification and removal of the malware from their system. There may also be costs associated with forensics investigations, legal experts, public relations firms, third party lawsuits, and notification and credit monitoring.
“The cyber arm of the CTR coverage extends to liability that an organization would suffer as a result of a breach, or failure of security of the insured’s network,” Landaverde said. That includes not just cyber extortion, but outright data theft or denial-of-service attacks.
Crisis Management Services
“We don’t just want to indemnify the security risks our clients face; we want to help them actively manage them,” Gibbs said.
The fourth component of Starr’s CTR solution – crisis response — provides two outside consultants to insureds, with one specializing in “hard” security services like guards or instances of cyber extortion, and another focusing on crisis communications.
Without these outside services, there is only so much insurance can do in the aftermath of a crisis. Experienced consultants provide a range of security preparedness and response services to complement coverage and help insureds recover from an episode of violence or cyber event.
“From a communications perspective, our consultants can manage the public relations front to create clear and consistent messaging, but they can also stay in touch with families after a terror or other violent attack to make sure everyone stays informed,” Gibbs said.
They also serve as a first point of contact for insureds immediately after an event. If they need guidance quickly, consultants await at the ready.
“When a client purchases the product, they get a 24-hour hotline set up with one of our consultancies,” he said. “They can report an incident at any time, and our consultant will help either resolve a situation or deal with the aftermath in whatever way they can.”
While the Cyber and Terror Response package provides a comprehensive solution tailored for mid-size companies, Starr also offers standalone cyber liability and crisis management coverage on a primary and excess basis.
“For companies with greater exposure to a particular type of risk, or who simply want higher limits or greater customization, we have those standalone polices.” Landaverde said.
For more information on Starr Companies’ Cyber and Terror Response solution, visit https://www.starrcompanies.com/Insurance/CyberAndTerrorResponse.
Starr Companies is the worldwide marketing name for the operating insurance and travel assistance companies and subsidiaries of Starr International Company, Inc. and for the investment business of C. V. Starr & Co., Inc. and its subsidiaries.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.