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With New Law, Delaware Now “Means Business” When It Comes To Disposal of Confidential Consumer Information

By: Aaron Krowne

On July 1, 2014, Delaware signed into law HB 295, which provides for the “safe destruction of records containing personal identifying information” (codified at Chapter 50C, Title 6, Subtitle II, of the Delaware Code). The law goes into effect January 1, 2015.

Overview of Delaware’s Data Destruction Law

In brief, the law requires a commercial entity to take reasonable steps to destroy or arrange for the destruction of consumers’ personal identifying information when this information is sought to be disposed of.

The core of this directive is to “take reasonable steps to destroy” the data. No specific requirement is given for this, though a few suggestions such as shredding, erasing, and overwriting information are given, creating some uncertainty as to what steps an entity might take in order to achieve compliance.

For purposes of this law “commercial entity” (CE) is defined so as to cover almost any type of business entity except governmental entities (in contrast, to say, Florida’s law). Importantly, Delaware’s definition of a CE clearly includes charities and nonprofits.

The definition of personal identifying information (PII) is central to complying with the law. For purposes of this law PII is defined as a consumer’s first name or first initial and last name, in combination with one of the individual’s: social security number, passport number, driver’s license or state ID card number, insurance policy number, financial/bank/credit/debit account number, tax, payroll information or confidential health care information. “Confidential health care information” is intentionally defined broadly so as to cover essentially a patient’s entire health care history.

The definition of PII also, importantly, excludes information that is encrypted, meaning, somewhat surprisingly, that encrypted information is deemed not to be “personal identifying information” under this law. This implies that, if any of the above listed data is encrypted, all of the consumer’s data may be retainable forever – even if judged no longer useful or relevant.

The definition of “consumer” in the law is also noteworthy, as it is defined so as to expressly exclude employees, and only covers individuals (not CEs) engaged in non-business transactions. Thus, rather surprisingly, an individual engaging in a transaction with a CE for their sole proprietorship business is not covered by the law.

Penalties and Enforcement

The law does not provide for any specific monetary damages in the case of “a record unreasonably disposed of.” But, it does provide a private right of action, whereby consumers may bring suit for an improper record disposal in case of actual damages – however, that violation must be reckless or intentional, not merely negligent. Additionally, and perhaps to greater effect, the Attorney General may bring either a lawsuit or an administrative action against a CE.

Who is Not Effected?

The law expressly exempts entities covered by pre-existing pertinent regulations, such as all health-related companies, which are covered by the Health Insurance Portability and Accountability Act, as well as banks, financial institutions, and consumer reporting agencies. At this point it remains unclear as to whether CEs without Delaware customers are considered within the scope of this law, as this law is written so broadly that it does not narrow its scope to either Delaware CEs, or to non-Delaware CEs with Delaware customers. Therefore, if your business falls into either category, the safest option is to comply with the provisions of the law.

Implications and Questions

We have already seen above that this facially-simple law contains many hidden wrinkles and leaves some open questions. Some further elaborations and questions include:

  • What are “reasonable steps to destroy” PII? Examples are given, but the intent seems to be to leave the specifics up to the CE’s judgment – including dispatching the job to a third party.
  • The “when” of disposal: the law applies when the CE “seeks to permanently dispose of” the PII. Does, then, the CE judging the consumer information as being no longer useful or necessary count? Or must the CE make an express disposal decision for the law to apply? If it is the latter, can CEs forever-defer applicability of the law by simply never formally “disposing” of the information (perhaps expressly declaring that it is “always” useful)?
  • Responsibility for the information – the law applies to PII “within the custody or control” of the CE. When does access constitute “custody” or “control”? With social networks, “cloud” storage and services, and increasingly portable, “brokered” consumer information, this is likely to become an increasingly tested issue.

Given these considerable questions, as well as the major jurisdictional ambiguity discussed above (and additional ones included in the extended version of this post), potential CEs (Delaware entities, as well as entities who may have Delaware customers) should make sure they are well within the bounds of compliance with this law. The best course of action is to contact an experienced OlenderFeldman attorney, and make sure your privacy and data disposal policies place your business comfortably within compliance of Delaware’s new data destruction law.