American Economy Insurance Co. v. Hartford Fire Insurance Co.
695 F. App'x 194
| 9th Cir. | 2017Background
- Aaron’s franchisee Aspen Way was sued in two actions (Byrd in federal court and Washington state action) alleging franchisees installed spy software on rented laptops that captured webcams, keystrokes, and screenshots and transmitted data to third parties.
- Aspen Way’s insurers (Liberty Mutual and Hartford) agreed to defend under reservations of rights while reserving the right to seek reimbursement if coverage was excluded.
- Policies covered “bodily injury” and “personal and advertising injury,” including publication of material violating privacy, but contained exclusions for injuries arising out of acts that violated statutes governing distribution or transmission of material (e.g., electronic-communications statutes).
- District court granted summary judgment for insurers, finding Liberty Mutual’s duty to defend was triggered by the Byrd complaint but barred by policy exclusions (and not triggered by the Washington complaint); Hartford’s duty was likewise barred by exclusions and by policy expiration for the Washington claims.
- The court reformed certain Liberty Mutual umbrella exclusions to reflect that only the Electronic Communications Privacy Act (ECPA) claim survived; Aspen Way’s counterclaims were dismissed as insurers had reasonable basis to contest coverage.
- Court allowed insurers to recoup defense costs under Montana law because Aspen Way implicitly accepted defense under reservation of rights and waived timely objections to the reservation and choice-of-law arguments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurers owed a duty to defend under the complaints | By( d) — Byrd and Washington complaints allege privacy invasions triggering coverage | Insurers: exclusions for statutory violations and lack of publication language negate duty | Duty to defend triggered by Byrd (alleging transmission) but not by Washington; exclusions ultimately precluded coverage |
| Whether policy exclusions for statutory-distribution/transmission violations bar coverage | Aspen Way: exclusions ambiguous or inapplicable to claims | Insurers: exclusions unambiguously exclude coverage for claims arising from statutes like ECPA | Exclusions applied; court reformed umbrella exclusions to reflect only ECPA survived and excluded coverage accordingly |
| Whether insurers must defend on claims occurring outside policy periods (Washington action) | Aspen Way: insurers should defend all related suits | Hartford: alleged misconduct occurred after policy expiration so no duty | No duty to defend Washington action from Hartford because misconduct postdated policy period |
| Whether insurers can recoup defense costs after reserving rights and defending | Aspen Way: reservation was untimely or insufficient to permit recoupment | Insurers: reservation of rights was valid; insured implicitly accepted defense so recoupment permitted | Under Montana law insurers may recoup; Aspen Way waived choice-of-law challenge and untimely reservation objection failed |
Key Cases Cited
- Las Vegas Sands, LLC v. Nehme, 632 F.3d 526 (9th Cir.) (summary judgment standard reviewed de novo)
- Orr v. Bank of Am., NT & SA, 285 F.3d 764 (9th Cir.) (summary judgment standard authority)
- Steadele v. Colony Ins. Co., 260 P.3d 145 (Mont.) (insurance-contract ambiguity principles)
- City of Bozeman v. AIU Ins. Co., 865 P.2d 268 (Mont.) (insurer’s obligations where covered claim failed at trial)
- Horace Mann Ins. Co. v. Hanke, 312 P.3d 429 (Mont.) (insurer recoupment when insured accepts defense under reservation)
- Travelers Cas. & Sur. Co. v. Ribi Immunochem Research, Inc., 108 P.3d 469 (Mont.) (same: recoupment and reservation of rights)
- Ruiz v. Affinity Logistics Corp., 667 F.3d 1318 (9th Cir.) (waiver for arguments not raised sufficiently below)
- In re Mercury Interactive Corp. Sec. Litig., 618 F.3d 988 (9th Cir.) (procedural waiver principles)