Ninth Circuit Affirms Summary Judgment in Duty to Defend Case
The U.S. Court of Appeals for the Ninth Circuit has ruled that insurers Liberty Mutual and Hartford have no duty to defend a rent-to-own franchisee against allegations that it installed spyware on laptop computers it rented to customers. The decision arose from two cases in which the plaintiffs claimed Montana-based Aspen Way Enterprises, a franchisee of Aaron’s, Inc., used the spyware to take photographs with the laptops’ webcams, capture keystrokes and take screenshots. In both cases, the insurers’ policies provided coverage for personal and advertising injury which included publication of private material; the policies excluded coverage if the injury arose from an act or omission that violated a statute prohibiting or governing publication of such information.
The lower court ruled in the first case that, although Liberty Mutual’s coverage was potentially triggered by an allegation that private information was published to third parties, Aspen Way’s alleged violation of the Electronic Communications Privacy Act fell within the policy exclusion barring coverage for such claims. In the second case, the court found that Aspen Way had failed to meet its threshold burden of demonstrating that the underlying complaint had alleged any publication of the private material, which was necessary to trigger coverage. The appeals court affirmed, upholding the lower court’s ruling for summary judgment for the insurers.
The court also agreed with the trial judge’s decision to grant the insurers’ motions for reimbursement from Aspen Way of almost $500,000 in defense and indemnity payments they had already made, because Aspen Way “implicitly accepted” their defenses under a reservation of rights.
Shook, Hardy & Bacon Partner Matt Sitzer and Associate Amy Cho represented Liberty Mutual before the Ninth Circuit, which issued its ruling only 10 days after oral argument. The ruling also received coverage in Mealey's Emerging Insurance Disputes (June 1, 2017).
Am. Econ. Ins. Co. v. Aspen Way Enter. Inc., No. 16-35059 (9th Cir., May 26, 2017).