Publications

(Article from Insurance Law Alert, June 2016)

For more information, please visit the Insurance Law Alert Resource Center.

Reversing a New York district court decision, the Second Circuit ruled that an insurer was obligated to defend suits alleging that the policyholder violated statutory and common law by transferring private customer information for profit.  National Fire Ins. Co. of Hartford v. E. Mishan & Sons, Inc., 2016 WL 3079958 (2d Cir. June 1, 2016).

Emerson was sued in two class actions suits alleging fraud, breach of contract, unjust enrichment and various statutory violations based on its participation in the transfer of private consumer credit card information.  Emerson’s general liability insurers refused to defend on the basis of a policy exclusion barring coverage for personal and advertising injury “caused by or at the direction of the insured with the knowledge that the act would violate the rights of another.”  A New York federal district court agreed, finding that all of the allegations in the underlying suits fell within the scope of the knowing violation exclusion.  The Second Circuit reversed.

The Second Circuit ruled that the knowing violation exclusion did not apply because some of the underlying causes of action did not require knowing or intentional conduct as an element.  The court explained that although the class actions suits generally alleged intentional conduct, the factual allegations did not rule out the possibility of a finding that Emerson acted without intent to harm.  In particular, the court noted that claims for unjust enrichment and breach of contract do not require a showing of intentional conduct.  Therefore, Emerson could be found liable in the underlying suits even absent evidence that it knowingly violated its customers’ right to privacy.  Having found that at least some claims were potentially within the scope of coverage, the court ruled that the insurers were required to defend the actions in their entirety.