A previous post to this blog by Patricia McManus pointed out that individuals whose protected health information (“PHI”) is stolen, lost, or otherwise inappropriately used, accessed, or left unsecured have no private right of action against the person or entity responsible for the breach under the HIPAA/HITECH laws. That may change for victims of identity theft who can show the theft was caused by a HIPAA breach, at least if the action is brought in the 11th Circuit.
The 11th Circuit District Court (Southern District of Florida) decision that came out on September 5, 2012 involved stolen unencrypted laptops containing PHI of approximately 1.2 million AvMed (health plan) patients. The lower court had dismissed the originally-filed class action because plaintiffs sought "to predicate recovery upon a mere specter of injury: a heightened likelihood of identity theft." The case was re-filed, naming as plaintiffs a subset of patients whose identities had been actually stolen since the laptop theft, alleging negligence by AvMed in protecting the sensitive information, breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty.
The District Court’s decision to deny AvMed’s motion to dismiss plaintiffs’ claim that AvMed’s data breach caused plaintiffs’ identity theft was based on its finding that plaintiffs "sufficiently alleged a nexus between the data theft and the identify theft and therefore meet the federal pleading standards… ," even though the computers were stolen 10 and 14 months prior to the identity thefts of the two specific plaintiffs named in the action. The court pointed out that both individuals were very protective of their personal data and did not transmit sensitive data electronically or store it on computers. One plaintiff’s sensitive information was used to open a Bank of America account and change her address with the US Post Office, while the other plaintiff’s sensitive information was used to open an E*Trade Financial account. Neither had experienced identify theft before the theft of the AvMed laptops.
The court also refused to dismiss the plaintiffs’ unjust enrichment claim, which was based on the fact that AvMed received premiums that were payments, at least in part, to protect sensitive information with "data management and security measures that are mandated by industry standards." Plaintiffs alleged AvMed failed to implement or inadequately implemented these policies.
If plaintiffs are ultimately successful in obtaining refunds of premiums and/or payments from AvMed for damages incurred as a result of the identity thefts, it could set an interesting precedent for future HIPAA breach victims, particularly if the court’s decision relies (as it seemed to rely in this decision) on the fact that the victims could show they were extremely careful not to store or transmit personal information via electronic means. In this age of intensive use of computers and the Internet for financial transactions, such plaintiffs are probably highly unusual. An individual who makes frequent or even occasional on-line purchases or pays bills electronically and who becomes the victim of a HIPAA breach might have difficulty demonstrating that a subsequent identity theft was the direct result of the breach.