Connecticut Supreme Court Affirms No Coverage under CGL Policy for Damages Arising from Lost Computer Tapes

The Supreme Court of Connecticut recently affirmed the lower court’s finding that no coverage obligation exists for insurers in Recall Total Info. Mgmt. v. Fed. Ins. Co., 2015 Conn. LEXIS 150 (Conn. May 26, 2015).

Recall Total Information Management, Inc. (“Recall”) contracted with IBM to transport and store computer backup tapes allegedly containing PII of current and former IBM employees.  Recall subcontracted with Executive Logistics Services, LLC (“Executive”) to provide transportation services for the tapes.  Federal Insurance Company and Scottsdale Insurance Company (“Insurers”) issued commercial general liability insurance policies to Executive under which Recall was named as an additional insured.  The CGL policies provided coverage for a “[s]uit” or “other dispute resolution proceeding” arising out of the negligence of the insureds and resulting in a “personal injury,” which was defined in the policies, in relevant part, as an “injury…caused by an offense…of electronic, oral, written or other publication of material that…violates a persons’ right of privacy…”

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During the transportation of the tapes, they purportedly fell off the back of Executive’s truck onto the roadside in the Bronx and then taken by an unknown individual.  The tapes were never recovered.  However, despite their loss, there was no evidence that the thief or anyone else ever accessed any data on the tapes.  There also a lack of evidence suggesting that the loss of the tapes caused any actual injury to any IBM employees.

IBM did incur significant expenses in providing identity theft services to its employees and through informal settlement negotiations, sought reimbursement of those amounts from Recall and Extension.  Once beginning settlement negotiations, Recall and Extension placed the Insurers on notice and sought the Insurers’ participation and coverage under the CGL insuring agreement.  The insurers disclaimed.

Recall and Executive then brought suit against the Insurers arguing that the loss of the tapes constituted a personal injury under the CGL policy that at least triggered a duty to defend the policyholders during settlement negotiations.  The Insurers asserted that the loss of the tapes failed to amount to a personal injury since there was no evidence of publication that resulted in a violation of anyone’s right to privacy.  The Insurers also argued that the informal settlement negotiations between IBM and the insureds did not qualify as a “[s]uit” or “other resolution proceeding” that triggered the duty to defend.

Both the trial court and the intermediate appellate court sided with the Insurers and granted summary judgment in their favor, finding that the losses claimed by Recall and Executive did not fall within the scope of the personal injury clauses of the CGL policy and that the loss of the tapes did not constitute a “personal injury” as defined due to the lack of any “publication” that resulted in a violation of the right to privacy.  The lower courts also ruled that the informal settlement negotiations did not constitute a “[s]uit” or “other dispute resolution proceeding,” that triggered a duty to defend.  The Connecticut Supreme Court affirmed the lower courts’ decisions and adopted their opinion.

 



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