Insurance Coverage for Wrongful Incarceration Claims in Ohio

Over the past 18 months, we have examined numerous states’ approaches to insurance coverage for underlying claims of wrongful incarceration and malicious prosecution. See here, here, here and here.

Last summer, the Sixth Circuit Court of Appeals, interpreting Ohio law, weighed in on this issue. Selective Ins. Co. v. RLI Ins. Co., 2017 U.S. App. LEXIS 16327 (6th Cir. Aug. 24, 2017). The Sixth Circuit ruled that the district court erred in finding an excess insurer liable for a settlement of an underlying malicious prosecution claim arising out of a claimant’s wrongful conviction. The court concluded that coverage was not triggered because the claim did not occur until several months after the policy period expired, when police withheld new exculpatory evidence from the wrongfully convicted claimant and there was no longer probable cause for the claimant’s arrest and prosecution.

In Selective, “Insurer A” issued an excess policy to the City of Barberton (“City”) from June 29, 1997 to June 29, 1998, and “Insurer B” issued an excess policy to the City from June 29, 1998 to June 29, 1999. The underlying claimant, who was exonerated of rape and murder based on DNA evidence after spending several years in jail, sued the City and its police officers, alleging violations of state law and his federal constitutional rights. All claims against the City were dismissed. The surviving claims against the individual officers included a § 1983 claim for a violation of due process based on the officers’ failure to disclose exculpatory evidence, and state law claims of malicious prosecution and loss of consortium. Specifically, the failure to disclose exculpatory evidence, i.e., the Brady violation, involved an inter-departmental memorandum that a police officer drafted identifying a suspect in two other aggravated robberies as the likely suspect in the claimant’s rape and murder case. The civil case settled for $5.25 million, to which Insurer B contributed $3.25 million. Insurer A denied coverage, claiming that the malicious prosecution of the claimant did not “occur” during its policy period.

As part of the settlement, Insurer B took an assignment of rights from the insured and filed suit against Insurer A for a declaration of coverage under Insurer A’s policy. Insurer B argued on summary judgment that the malicious prosecution of the claimant “occurred” when the charges were filed against the claimant on June 11, 1998. As a result, coverage was triggered under Insurer A’s policy, whose policy period ended on June 29, 1998. Insurer A also moved for summary judgment, arguing that the tort of malicious prosecution occurred at the time of the Brady violation, which occurred in January 1999, six months after its policy expired.

The district court disagreed with Insurer A, stating that although the January 1999 concealment of exculpatory evidence was enough on its own for the claimant’s malicious prosecution claim, there was also evidence of wrongdoing by the police officers during the earlier policy period, such as the dismissal of alibi witnesses and a DNA mismatch. Therefore, the claimant may have had a viable malicious prosecution claim even prior to the alleged Brady violation, during the first policy period. The district court then relied on what it called the “majority rule” from other jurisdictions as to trigger of coverage for malicious prosecution claims, holding that coverage for such claims is triggered at the time that the underlying charges are filed. Because the claimant was first arrested during the first policy period, the court ruled that Insurer A owed coverage and had to reimburse Insurer B.

On appeal to the Sixth Circuit, Insurer A again argued that it was not liable for the excess liability claim because no tort occurred during the policy. The Sixth Circuit agreed, concluding that the district court erred in finding Insurer A liable for the settlement. According to the court, because there was probable cause to prosecute and detain the claimant until exculpatory evidence came into existence, the officers’ actions before the exculpatory evidence came into existence could not have caused a covered loss under the RLI policy. The court explained that under Ohio law, malicious prosecution requires the instituting or continuing of prosecution without probable cause. In Ohio, a claimant can recover for a prosecution that was not malicious at its inception, but became malicious later, when it continued without probable cause. The key issue is whether there was probable cause and when such probable cause disappeared. The court determined that in the underlying matter, the City and police officers had probable cause until the alleged Brady violation, such that the malicious prosecution and the deprivation of due process could only have occurred in January 1999, after expiration of Insurer A’s policy period. Therefore, the court concluded that under the plain language of the policy, the police officers’ liability to claimant was not covered under Insurer A’s policy.

The Sixth Circuit distinguished the district court’s “majority rule” based upon the policy language at issue in Insurer A’s policy and because none of the cases relied upon dealt with a situation like claimant’s case, “where the injury—i.e., the filing of charges—occurred before any tortious activity, and therefore could not have been caused by the tortious activity.”

This case demonstrates the importance of carefully analyzing the specific elements of a malicious prosecution claim in a particular jurisdiction, as well as the specific policy language at issue. Such careful analysis translates to a predictable conclusion in trigger of coverage for wrongful incarceration cases.

The next installment will review the law in Mississippi. In the meantime, if there are any questions about other jurisdictions or jurisdictions already discussed, please contact us ([email protected] or [email protected]) and we can address your questions directly.

Insurance Coverage for Malicious Prosecution Claims in Georgia

Until recently, Georgia has had no case law addressing insurance coverage trigger for a malicious prosecution claim. But in 2016, the Georgia Court of Appeals finally rendered an opinion addressing this specific issue, with a twist in that the claimant was arrested during the policy period but was charged and prosecuted after the policy expired.

In Zook v. Arch Specialty Ins. Co., 784 S.E.2d 119 (2016), the claimant was arrested on May 21, 2009 after an incident at the insured’s nightclub. The claimant was charged with simple battery on March 1, 2010 and was prosecuted thereafter. After the jury found the claimant not guilty of simple battery, he commenced a lawsuit against the nightclub and its employees for false imprisonment, battery, negligence, malicious prosecution and malicious arrest. While that action was pending, the claimant filed a declaratory judgment action against the same defendants and Arch Specialty Insurance Company (“Arch”), which issued a CGL policy (“Policy”) to the nightclub from June 27, 2008 to June 27, 2009. The policy provided coverage for injury arising out of malicious prosecution if the offense was committed during the policy period. Arch took the position that the “offense” took place on March 1, 2010, when the claimant was charged with the crime for which he was prosecuted (simple battery). Because the Policy expired on June 27, 2009, Arch argued that no offense took place during the policy period.  The trial court agreed and granted summary judgment to Arch.

The Georgia Court of Appeals, however, disagreed. The Court noted that Georgia appellate courts had not yet addressed the issue of when a malicious prosecution claim arises for purposes of triggering insurance coverage. The Court of Appeals acknowledged that the majority of other jurisdictions have held that “coverage is triggered when the insured sets in motion the legal machinery of the state.” Id. at 674. However, the Court disagreed with Arch’s interpretation of the majority holding because Arch focused on when the claimant was charged and relied on case law that dealt with a scenario in which the claimant was arrested and charged on the same date.

The Georgia Court of Appeals held that in this case, the arrest is the “bad act” of the insured that set the legal machinery of the state in action.  Id. at 675. In other words, the arrest was the “offense” that invoked the judicial process against the claimant, and the arrest took place during the Arch policy period. The Court held,

From the standpoint of a reasonable person in the position of the insured, policy coverage for injury arising from a malicious prosecution occurring during the policy period exists if the insured’s conduct in instituting such a prosecution took place during the covered period. For the foregoing reasons, we adopt the majority rule that when the contract does not specify, insurance coverage is triggered on a potential claim for malicious prosecution when the insured sets in motion the legal machinery of the state.

Id. at 675-6.

The analysis pertaining to the trigger of coverage for wrongful incarceration and malicious prosecution cases are becoming more intricate and detail-oriented as the courts throughout the country are exposed to different fact patterns. To the extent that the claimant is arrested and charged during different policy periods, it appears that the first event of the arrest will be considered as the event that triggers coverage.

The next installment will review the law in Ohio. In the meantime, if there are any questions about other jurisdictions or jurisdictions already discussed, please contact us ([email protected] or [email protected]) and we can address your questions directly.

Insurance Coverage for Wrongful Incarceration Cases in New Jersey

The third jurisdiction we address pertaining to wrongful incarceration coverage issues is New Jersey, which has three relevant cases. New Jersey courts have held that for purposes of determining the existence of insurance coverage under a general liability policy, in the absence of any applicable exclusion, the triggering event occurs on the date when the underlying criminal complaint is filed against the claimant. However, when determining coverage for a municipal insured’s obligation to indemnify its employee for fees incurred in defending against criminal charges, as required by specific statutes, the triggering event is not the filing of criminal charges against the employee, but rather the acquittal or dismissal of those charges against the employee.

The first of the malicious prosecution cases is Muller Fuel Oil Co. v. Ins. Co. of North America, 232 A.2d 168 (N.J. Super. Ct. App. Div. 1967), in which the insured, Muller Fuel Oil Company (“Muller”), unsuccessfully filed a criminal complaint against Thomas Policastro (“Policastro”) for issuing a worthless check. Policastro was arrested in November 1961 and indicted in May 1962.  In December 1962, Muller purchased a CGL policy from Insurance Company of North America (“INA”). Thereafter, in March 1963, Policastro was acquitted of the criminal charges and quickly filed a malicious prosecution and false arrest suit against Muller.

Muller sought coverage from INA, claiming that Policastro’s lawsuit against it did not fully ripen until his acquittal in March 1963, and thus constituted an “occurrence” during INA’s policy period of December 1, 1962 to December 1, 1965. INA, on the other hand, denied coverage for Muller’s claim, contending that the criminal complaint that was the basis for Policastro’s malicious prosecution suit was filed by Muller prior to inception of the INA policy. Muller then sought a declaratory judgment that coverage existed under the policy.

On appeal from a New Jersey Superior Court ruling dismissing Muller’s complaint against INA, the Appellate Division affirmed the decision, finding that “[i]n a claim based on malicious prosecution the damage begins to flow from the very commencement of the tortious conduct – the making of the criminal complaint.” According to the Appellate Division, the allegedly tortious conduct and injury to the accused as a result of the malicious prosecution (arrest on November 1961) antedated the issuance of the policy (December 1, 1962) by more than year. As a result, there was no coverage under the INA policy.

The second malicious prosecution case is Paterson Tallow Co. v. Royal Globe Ins. Co. 89 N.J. 24, 444 A.2d 579 (1981). In Paterson, the New Jersey Supreme Court affirmed the judgment of the lower court that insurer Royal Globe Insurance Company (“Royal Globe”) was not obligated to defend the insured, Paterson Tallow Company (“Paterson”), because the complaint that resulted in the malicious prosecution action against Paterson was filed before the effective date of Royal Globe’s policy.

In Paterson, Paterson filed criminal charges in June 1969 against a former employee, James Brown (“Brown”), for theft. In October 1970, while the criminal charges were pending, Paterson purchased a CGL policy that provided coverage for bodily injury, property damage, and personal injury, including coverage for malicious prosecution. In March 1971, Brown was acquitted of all charges against him. Brown filed suit against Paterson in January 1977 alleging malicious prosecution, and Paterson tendered the claim to Royal Globe seeking coverage. Royal Globe denied coverage for the claim, in part, because “all the acts that were alleged to constitute malicious prosecution took place before the policy was issued in 1970.” In a subsequent declaratory judgment action, Paterson and Royal filed cross motions for summary judgment and Paterson asserted that it was entitled to coverage for the action because a crucial component of the malicious prosecution offense, specifically, termination of the criminal charges against Brown, occurred during Royal Globe’s policy period.

The trial court found the appellate court’s ruling in Muller (discussed above) dispositive and granted summary judgment in favor of Royal Globe. On appeal, the New Jersey Supreme Court held that “for the purpose of determining the existence of coverage under this type of policy, in the absence of any qualifying exclusion or exception the offense of malicious prosecution occurs on the date when the underlying [criminal] complaint is filed. Inasmuch as the [criminal complaint] in this case was filed before the effective date of the policy, we affirm the judgment of the Appellate Division denying coverage.”

The third case is slightly different in that it addressed coverage for an insured’s obligation to indemnify its employee for fees and costs the employee incurred defending against criminal charges against him that were ultimately found to be meritless. In Board of Education v. Utica Mut. Ins. Co., 798 A.2d 605 (N.J. 2002), the New Jersey Supreme Court was tasked with deciding whether it was the filing of criminal charges against an employee of a board of education, or the acquittal of dismissal of those charges, that triggered coverage under an insurance policy issued to satisfy the board’s statutory obligation to indemnify such employee. The trial court found that the triggering event was the acquittal or dismissal while the appellate court reversed and decided that the triggering event was the filing of criminal charges. On appeal, the New Jersey Supreme Court held that the triggering event is the acquittal or other disposition of the criminal charges in favor of the employee of the board of education.

This case involved a teacher, David Ford (“Ford”), employed by the Borough of Florham Park Board of Education (“Board”), who was arrested and charged with sexual assault and reckless endangerment of four of his students in June 1996. In March 1999, a jury acquitted Ford of all charges. Soon after, he demanded that the Board reimburse him nearly $500,000 in legal fees and expenses for successfully defending the criminal action pursuant to various New Jersey statutes that “…obligate a board of education to defray all costs incurred by an … employee of the board in defending criminal charges filed against the person whose charges: … (2) resulted in a final disposition in favor of such person.” The statute also authorized a board to purchase insurance to cover all such damages, losses and expenses the board may be obligated to pay.

The Board sought coverage from Selective Insurance Company (“Selective”) and Utica Mutual Insurance Company (“Utica”) for its indemnity obligation to Ford. At the time of Ford’s arrest, the Board was insured by Selective under a policy that provided coverage from July 1, 1993 to July 1, 1996. By endorsement, the Selective policy provided that “this Coverage Part shall conform to the terms of the New Jersey compiled statutes” discussed above. Utica insured the Board from July 1, 1996 to July 1, 1999, and contained a nearly identical endorsement provision as the Selective policy, incorporating the pertinent New Jersey statutes. Utica denied coverage to the Board because its policy was not in effect when Ford was criminally charged in June 1996. Selective denied coverage for any legal expenses that were incurred after its policy expired on July 1, 1996, and reserved the right to deny all coverage. The Board filed a declaratory judgment action against Selective and Utica.

The trigger issue was appealed to the New Jersey Supreme Court. The Court noted that both the Selective and Utica policies incorporated by reference the statutory language, which specified that an employee’s right to reimbursement accrues when “the criminal charges result in an acquittal or otherwise are dismissed.” The Court also noted that indemnification obligations generally accrue “only on an event fixing liability, rather than on preliminary events that eventually may lead to liability but have not yet occurred.” The Court held that the triggering event for coverage was the favorable disposition of all criminal charges against Ford. As a result, Utica’s policy was triggered since Ford incurred no reimbursable expenses prior to his acquittal. On the other hand, Selective had no coverage obligation as the Selective policy had expired by the time of Ford’s acquittal.

The Court distinguished its holding in Paterson and explained that when an insured seeks coverage related to its own conduct of initiating criminal charges against its employee, it is reasonable to use the conduct of the insured in filing the criminal charges as the “triggering event” to assess coverage for malicious prosecution. But in a statutory indemnification case, the “essence” of the claim is not the filing of the criminal charges.” Rather, the Board’s liability “is triggered by the event specified in the statutes, namely a final disposition of those charges in favor of the Board’s employee.”

In light of the cases discussed above, the New Jersey courts are fairly clear that the trigger of coverage in malicious prosecution and wrongful arrest cases is the filing of charges against the claimant. However, in cases involving coverage for statutory indemnification of fees and costs incurred in defending against a criminal prosecution case, the trigger of coverage is not filing of charges, but rather, acquittal of such charges. As is always the case, it is important to carefully review the applicable policy and understand the scope of coverage provided.

The next installment will review the law in Georgia. In the meantime, if there are any questions about another jurisdiction, please contact us ([email protected] or [email protected]) and we can address your questions directly.

Insurance Coverage for Wrongful Incarceration Cases in California

The second jurisdiction we will discuss pertaining to coverage issues arising out of claims for wrongful incarceration is California, which, like New York, has two pertinent decisions involving coverage for malicious prosecution cases. Unlike New York, however, the case law in California stems from civil cases, not criminal cases. Nonetheless, the Court of Appeal in California held that it makes no difference whether the case is civil or criminal in determining whether a claim for malicious prosecution implicates insurance coverage.

The first case is Harbor Insurance Company v. Central National Insurance Company, 165 Cal. App.3d 1029, 211 Cal. Rptr. 902 (1985), in which the insured, A.J. Industries, Inc. (“A.J.”) unsuccessfully prosecuted an action between 1971 and 1978 against its former president and chairman. When A.J. filed the action, it was insured by Zurich Insurance Company (“Zurich”) for a limit of $300,000 and by Harbor Insurance Company (“Harbor”) for $5,000,000. While the malicious action was pending (and until April 1, 1975), A.J. switched insurers and had primary insurance with Argonaut Insurance Company (“Argonaut”) and excess insurance with Midland Insurance Company (“Midland”).

On April 16, 1976, the former president and chairman filed an action against A.J. for malicious prosecution. By that point in time, A.J. was insured by Central National Insurance Company (“Central National”). A.J. nonetheless tendered its defense to Zurich.  Zurich accepted the tender and turned the matter for handling to Harbor, the concurrent excess carrier. Harbor defended the malicious prosecution action under reservation of rights, and also tendered the claim to Central National, Midland and Argonaut. After those insurers denied coverage, Harbor filed suit.

The issue addressed by the California Court of Appeal, Second Appellate District, was whether Argonaut’s or Midland’s policies provided coverage for the malicious prosecution lawsuit against A.J.

Argonaut’s policy provided coverage for damages because of “personal injury” sustained by any person arising out of an offense committed in the conduct of the named insured’s business.  The term “offense” included false arrest, detention or imprisonment, or malicious prosecution, if such offense is committed during the policy period. The Court of Appeal ruled that the “offense” of malicious prosecution is “committed” upon institution of the malicious action against the defendant. The court noted that the “gist of the tort is committed when the malicious action is commenced and the defendant is subjected to process or other injurious impact by the action.” In other words, “from both the tortfeasor’s and the victim’s standpoint the ‘offense’ is ‘committed’ upon initial prosecution of that action. At that point the tortfeasor has invoked the judicial process against the victim maliciously and without probable cause, and the victim has thereby suffered damage.” Because the malicious action was commenced before the Argonaut policy came into effect, the court held that there was no coverage under the policy.

The court rejected Harbor’s argument that the offense of malicious prosecution is a “continuing occurrence,” which is “committed” throughout the prosecution of the malicious action because it continues to cause damage until the action is terminated. The Court of Appeal noted that such an argument was a theoretical misunderstanding of the elements of the tort in that “[a]lthough continued proceedings after commencement of the action will increase and aggravate the defendant’s damages, the initial wrong and consequent harm have been committed upon commencement of the action and the initial impact thereof on the defendant.”

The Court then addressed the two Midland policies, one of which agreed to indemnify A.J. against such ultimate net loss in excess of the primary limits by reason of liability for damages because of personal injury caused by an occurrence. This excess policy defined “personal injury” as “injury arising out of false arrest, false imprisonment, wrongful eviction, detention, malicious prosecution, … which occurs during the policy period.” The Court of Appeal held that the definition of “personal injury” required the malicious prosecution to “occur” during the policy period. For the reasons discussed pertaining to the Argonaut policy, the Court of Appeal held that malicious prosecution did not “occur” during this Midland policy, so Midland had no obligations under the policy.

The second Midland policy agreed to indemnify A.J. for all sums that it became obligated to pay by reason of liability for damages on account of “personal injuries” caused by an “occurrence.” The term “personal injuries” was defined, in part, as malicious prosecution, and the term “occurrence” was defined as “an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the Insured.” In order to avoid a self-defeating construction of the policy that would render “personal injuries” being excluded from coverage, the court deemed as an oversight the use of the term “bodily injury” in the definition of “occurrence” and inserted “personal injuries” in the place of “bodily injury” in the definition.

So construed, however, the policy yet remains limited in coverage to “occurrences” which result in personal injury (here, i.e., malicious prosecution), or property damage, within the policy period. The upshot of this “occurrence” limitation is that the instant incident of malicious prosecution was not subject to this policy. As discussed above, A.J.’s malicious prosecution “occurred” before the policy term began, when the malicious action was commenced against [the former president and chairman] in 1971. The gist of the wrong then was inflicted and complete.

The Court found no coverage under this Midland policy.

The second California case is Zurich Ins. Co. v. Peterson, 188 Cal. App.3d 438, 232 Cal. Rptr. 807 (1986), which involved a lawsuit filed by Tri-Tool against its president to rescind an employment contract. When the complaint was filed, Tri-Tool was insured by Home Insurance Company (“Home”). The Home policy agreed to indemnify Tri-Tool for damages because of injury arising out of the offenses of false arrest, detention, or imprisonment, or malicious prosecution, if such offense is committed during the policy period.

In February of 1980, the Home policy was replaced by a primary policy issued by American Guarantee and Liability Insurance Company (“AGLIC”) and an excess policy issued by Zurich Insurance Company (“Zurich”). The AGLIC policy agreed to pay all sums that the insured becomes legally obligated to pay as damages because of “personal injury,” which, in turn, was defined as an “injury arising out of one or more of the following offenses committed during the policy period” and listed false arrest, detention, imprisonment or malicious prosecution as the offenses. The Zurich policy also provided coverage for personal injury, including “injury resulting from false arrest, detention or imprisonment, … malicious prosecution ….” The policy defined an “occurrence” of malicious prosecution as “an act or series of acts of the same or similar nature, committed during this policy period which causes such personal injury.”

The Court of Appeal, Third Appellate District, noted that a favorable termination of the malicious action might be a prerequisite to the filing a malicious prosecution action, but it was not determinative of coverage because the policies at issue did not contain any reference to a particular date. Rather, to implicate coverage, the policies required the act or offense of malicious prosecution to have been committed during the policy period. The court then reviewed the Harbor Insurance Company case and noted that the Harbor court rejected the continuing occurrence concept and determined that the critical date was the filing of the complaint. The Court ruled,

It makes little difference whether the state or an individual controls the maliciously prosecuted action: an individual is first injured upon the filing of a complaint with malice and without probable cause. While some of the adverse consequences to the injured party will depend on whether a criminal prosecution is begun or a civil suit prosecuted, in each case a party’s reputation is injured and legal expenses are incurred at the initiation of the malicious complaint. The fact that damages increase as the prosecution continues does not transform malicious prosecution into a continuing occurrence. We join the reasoned decisions of the majority in holding that for purposes of an insurance policy which measures coverage by the period within which the “offense is committed,” the tort of malicious prosecution occurs upon the filing of the complaint.

Because the policies issued by Zurich and American came into effect after the date Tri-Tool filed its complaint against the president, neither insurer had an obligation to defend or indemnify Tri-Tool.

The interesting thing about California is the interplay between wrongful incarceration cases and California Insurance Code Section 533 (“Section 533”), which states, in part, that an “insurer is not liable for a loss caused by the willful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents or others.” In short, Section 533 precludes insurance coverage, or indemnity, for a “willful act,” but Section 533 does not apply to the duty to defend or to vicarious liability.

In Downey Venture, et al. v. LMI Ins. Co., 66 Cal. App. 4th 478, 78 Cal. Rptr.2d 143 (1998), the California Court of Appeal, Second Appellate District, held that Section 533 precluded coverage for malicious prosecution, even though such coverage was expressly provided in the policy, because malice is an element for establishing a claim for malicious prosecution. The Court of Appeal noted that in California, “the commission of the tort of malicious prosecution requires a showing of an unsuccessful prosecution of a criminal or civil action, which any reasonable attorney would regard as totally and completely without merit, for the intentionally wrongful purpose of injuring another person.” Id. at 154. The Court of Appeal ultimately held that because the commission of the tort of malicious prosecution constitutes a willful act within the meaning of Section 533, LMI was not obligated to indemnify the insured for such claim.

Ultimately, under California law, an insurer may have a defense obligation in wrongful incarceration cases, but there is a good chance that the insurer will not have an indemnity obligation to the extent that the liability of the insured(s) is based on “willful acts” of malicious prosecution.

The next installment will review the law in New Jersey, a jurisdiction that may have the oldest case law pertaining to insurance coverage for malicious prosecution cases. Again, if there are any questions about another jurisdiction, please contact us ([email protected] or [email protected]) and we can address your questions directly.

Ninth Circuit Zaps Insured’s Suit Seeking Coverage for Zip Code Claims

In Big 5 Sporting Goods Corp. v. Zurich American Ins. Co., et al., Case No. 13-56249 (9th Cir. Dec. 7, 2015), the Ninth Circuit, interpreting California law, held that underlying putative class action lawsuits asserting Song-Beverly Act claims alongside causes of action for invasion of privacy and negligence were not covered and did not trigger a duty to defend under CGL policies issued by Zurich and Hartford. The Ninth Circuit affirmed the decision of the Central District Court Judge Dolly Gee.

The Song-Beverly Act prohibits retailers from requesting and recording personal identification information (e.g., Zip codes) in conjunction with point-of-sale credit card transactions. Big 5 was sued in a series of underlying class action lawsuits asserting causes of action based on alleged violations of the Song-Beverly Act. Some of those complaints also asserted common law and constitutional invasion of privacy claims as well as negligence causes of action.

The policies included “Distribution of Material” exclusions which eliminated coverage for personal and advertising injury arising directly or indirectly out of any act or omission that violates or is alleged to violate any statute that prohibits or limits the sending, transmitting, communicating, distribution, etc., of material or information. Additionally, the Hartford policy included a “Right of Privacy Created by Statute” exclusion which eliminated coverage for personal and advertising injury arising out of the violation of a person’s right of privacy created by statute.

The Ninth Circuit affirmed District Court, holding that these exclusions eliminated coverage and any duty to defend the underlying suits based on the alleged violations of the Song-Beverly Act. The Court determined that the Act was undeniably a statute and that the alleged violations of the Act amounted to acts or omissions that were excluded from coverage.

Significantly, the Ninth Circuit rejected Big 5’s argument that the underlying common law and California constitutional invasion of privacy claims independently triggered a duty to defend. In doing so, the Court determined that in the context of the at-issue garden variety Song-Beverly Act complaints, such invasion of privacy claims “simply do not exist.” The Court further stated:

California does not recognize any common law or constitutional privacy right causes of action for requesting, sending, transmitting, communicating, distributing, or commercially using ZIP Codes. The only possible claim is for statutory penalties, not damages.

As support for this conclusion, the Ninth Circuit recognized that the Song-Beverly Act created a new right to protection in a consumer’s personal identification information that that did not previously exist and that the remedy for violations of the Act were specified statutory penalties. It also relied on the decision in Fogelstrom v. Lamps Plus, Inc. (2011) 195 Cal. App. 4th 986, which concluded that in the context of Song-Beverly class actions, there was no actionable invasion of privacy cause of action as the required element of a serious invasion of privacy or egregious breach of social norms was not present.

The Ninth Circuit further held that the underlying negligence causes of action did not trigger a duty to defend, stating that “[j]ust as a rose by any other name is still a rose, so a ZIP Code case under any other label remains a ZIP Code case.” The Court recognized that under California law, artful drafting and the assertion of superfluous negligence claims does not create a duty to defend where such a duty does not otherwise exist under the facts alleged.

With its decision in Big 5, the Ninth Circuit joins a growing number of Courts from across the country that have held that statutory class action lawsuits do not trigger a duty to defend under CGL policies.

The Ninth Circuit’s decision in Big 5 is not published and its citation is governed by 9th Cir. R. 36-3.