Evan Schuman's StorefrontBacktalk

Continuing: “It reasonably appeared that all Hannaford customers to have used credit or debit cards during the class period were at risk of unauthorized charges. That many banks or issuers immediately issued new cards is evidence of the reasonableness of replacement of cards as mitigation. Those banks thought the cards would be subject to unauthorized use, and cancelled those cards to mitigate their own losses in what was a commercially reasonable judgment. That other financial institutions did not replace cards immediately does not make it unreasonable for cardholders to take steps to protect themselves. It was foreseeable, on these facts, that a customer, knowing that her credit- or debit-card data had been compromised and that thousands of fraudulent charges had resulted from the same security breach, would replace the card to mitigate against misuse of the card data.”

The panel also addressed the argument that the consumers who sought the compensation for their replacement-card fees had never seen any bogus charges on their cards. “It is true that the only plaintiffs to allege having to pay a replacement-card fee do not allege that they experienced any unauthorized charges to their account, but the test for mitigation is not hindsight. Similarly, it was foreseeable that a customer who had experienced unauthorized charges to her account would reasonably purchase insurance to protect against the consequences of data misuse,” the panel said.

Another Hannaford claim the appellate panel rejected was that paying for insurance for consumer breach victims would cause tons of unnecessary insurance to be purchased. “Hannaford also argues that allowing recovery for prophylactic measures such as identity-theft insurance would provide incentives for the unnecessary purchase of such products. As we have discussed, however, such recovery is bounded by the principle of reasonableness. Recovery is allowable only if the decision to purchase such a product was a reasonable effort to mitigate under the circumstances.”

The panel seemed to be suggesting that the overwhelming majority of consumer breach victims would not likely be able to make such an argument successfully.

Our take: The panel’s decision is quite sound. As a practical matter, when a chain is admitting a huge data breach by global criminals who are still at large (the Albert Gonzalez gang was eventually charged with the attacks), the act of denying customers a replacement payment card seems miserly at best and foolish at worst. At that particular moment, you really want to treat your customers really well. Seems an odd time to get all anal about a several-dollar replacement charge.

As for the insurance, that’s the sort of thing chains should now buy in bulk and hand out like candy during a breach, not dissimilar to the way credit monitoring services are now doled out.