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Continued: Target's data woes will be costly

  • Article by: THOMAS LEE , Star Tribune
  • Last update: January 12, 2014 - 7:30 AM

For example, a 5 percent increase or decrease in average claim costs could have altered Target’s self-insurance expenses by $31 million in fiscal 2012.

The company noted that insurance claims rarely are material to its financial statements. But Target has never experienced a data theft of this magnitude before — it is at least the second-largest known breach in U.S. retail history.

A key part of Target’s legal defense will be whether the company can argue that it took “reasonable” steps to safeguard the data, such as employing a third party to ensure that its systems met industry standards, Tomarchio said.

Much of that depends on the outcome of Target’s forensic investigation into how the thieves stole the information in the first place. Normally, companies are not supposed to store financial information (credit cards, PIN numbers) and personal information (names, addresses, phone numbers) in the same place, Mazur said.

“That’s what puzzles me,” Mazur said. “I’m not quite sure how the thefts of both sets of information happened.”

In any case, Target should resolve these lawsuits as soon as it can, said Randy Maniloff, an insurance attorney with the White and Williams law firm in Philadelphia. Otherwise, the threat of legal liability will linger over shareholders for years, he said.

“You don’t want unquantifiable uncertainty on your books.”

 

Thomas Lee • 612-673-4113

 

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