A breach of confidentiality happens when data or information provided to you by the client is disclosed to a third-party without the approval of the client.

Even though the breach of confidentiality was unintentional; a client can still suffer financial losses due to this. In order to recoup the losses, the client can file a legal suit against your company.

The outcome of breaching confidentiality can vary from one case to the other. Sometimes a simple apology is what the client is looking for, however, if they have suffered major financial losses, a legal action can be filed.

The most common way in which breaching of confidential information occurs includes theft or hacking of personal details and card information.

Here are the following three important elements to establish breach of confidential information=

  • The information should have some necessary confidence about it
  • The information should be based on the circumstances imparting the obligation of confidence
  • There must be an unlawful use of the information

While hacking is a common threat in the current scenario, the more serious problem that companies face usually is due to the negligence of employees. Lax in business operations and mistakes by employees can be one of the major reasons behind data breaches. For instance, a single stolen laptop can cause unimaginable losses or damages to business.

In the case of insurance sector, the breach of information can have an adverse impact. Because in the insurance segment, it involves very personal and sensitive information, confidentiality is imperative to facilitate open and forthright communication between different parties and thus, serving the best interests.

Let’s understand the breach of confidential information and its impact in case of Director & Officer Liability Insurance.

Case

Established in 1998, MKS Engineering Co. had established a name for itself in the engineering sector. Last year, the company agreed with T.J Transport.

As per the agreement between the engineering company and the transport company, the latter was responsible for transporting the engineering company’s goods in different parts of India.

A few months back, the engineering company bagged a major contract of engineering items from a buyer situated in Pune.

MKS Engineering Co. informed the transport company as the latter had an obligation to transport goods. However, when the shipping was still a few weeks away, the engineering company came to know that its competitor had all the information about its future deals.

The engineering company ordered an investigation to know the source of leakage of information. and its result clearly stated that one of the directors of the transport company had breached the confidentiality provision of the contract by sharing its sensitive information.

It was considered as the breach of the confidential information as per the contract between the engineering company and the transport company. Due to this, the agreement was revoked, and a legal action was commenced against the director of the transport company.

However, the director of the transport company denied his involvement. He argued that he unintentionally disclosed the information when the other party called him to avail their services for the next six months.

As their transport company was already in agreement with the engineering company for the next one year, he refused the request of the other party and inadvertently disclosed the reasons for denials.

In this case, the transport company had a Director & Officer Liability Insurance (D&O), it approached the insurer for getting the coverage. Though there was a breach of confidential information, in this case; the insurer agreed to cover the transport company because it happened unintentionally.

When the case reached the court, the insurer agreed to provide the coverage on the basis of the allegations filed against the director. Although the engineering company’s claims were upheld by the lower court, the director was cleared of all the allegations when the case reached the high court.

Here, the Director & Officer Liability insurance policy covered all the legal expenses incurred by the transport company in defending its director in both the courts.

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