SAIC: Insurance will cover funds sought in TRICARE data theft lawsuits

Science Applications International Corp. has enough insurance to cover judgments or settlements that could result from the September 2011 theft of computer tapes containing the medical records of 4.9 million beneficiaries of the military TRICARE health insurance program. The company disclosed that information last week in a filing with the Securities and Exchange Commission.

Seven lawsuits have been filed against the TRICARE contractor claiming as much as $4.9 billion in damages. The computer tapes that held the data were taken from the parked car of an SAIC employee who was transporting the records from one facility to another. According to the SEC filing, the company's insurance policy will cover any judgments after it meets a $10 million deductible payment.

The company's annual 10-K report -- a comprehensive summary of operations, financial condition and litigation required by SEC -- also noted the Office for Civil Rights in the Health and Human Services Department opened an investigation into the tape theft. A TRICARE spokesman confirmed that investigation started Nov. 17, 2011. The Office of Civil Rights enforces privacy and security rules contained in the 1996 Health Insurance Portability and Accountability Act and the 2009 Health Information Technology for Economic and Clinical Health Act.

SAIC already has booked a $10 million loss related to the seven lawsuits, which it said in the SEC filing represented "the low end of the company's estimated loss. The company believes that if any loss is experienced by the company in excess of its estimate, such a loss would not exceed the company's insurance coverage."

The filing said the tapes "contained personally identifiable and protected health information of approximately 5 million military clinic and hospital patients" but noted "there is no evidence that any of the data on the backup tapes has actually been accessed or viewed by an unauthorized person. In order for an unauthorized person to access or view the data on the backup tapes, it would require knowledge of and access to specific hardware and software and knowledge of the system and data structure."

As the lawsuits progress, SAIC said many factors will affect the amount of the ultimate loss resulting from claims against the company, including "the outcome of the company's motions to dismiss the results of any discovery, the outcome of any pretrial motions and the courts' rulings on certain legal issues."

Spokesman Austin Camacho said TRICARE submitted written responses to inquiries from the Office of Civil Rights on Nov. 23, 2011, and Jan. 26, 2012, "detailing our policies, procedures, and documentation related to the privacy and security rules. We have complied with all their requests and will continue to do so."

Leon Rodriguez, director of the HHS Office for Civil Rights, declined to address the TRICARE investigation directly in response to a query from Nextgov. He did say if a covered entity did not take steps to resolve privacy breaches "in a way that is satisfactory" his office may decide to impose monetary penalties.

In March, the Office of Civil Rights slapped Blue Cross Blue Shield of Tennessee with a $1.5 million fine after that insurer reported the theft of 57 unencrypted computer hard drives that contained the protected health information of more than 1 million people, including their names, Social Security numbers, diagnosis codes, dates of birth, and health plan identification numbers. This was the first enforcement action by the office under the HITECH Act data breach notification rule.