Defender Security Company v. First Mercury Insurance Compan
2015 U.S. App. LEXIS 17116
| 7th Cir. | 2015Background
- Defender purchased a CGL policy from First Mercury; Defender tendered Brown suit defense; First Mercury denied coverage.
- Brown suit in California alleged Defender recorded consumer calls without consent and stored recordings, claiming violations of Cal. Penal Code §§ 632, 632.7.
- Policy requires First Mercury to defend and cover damages for personal or advertising injuries arising from publication that violates privacy.
- Publication is not defined in the policy; Brown claim centered on recording, storage, and potential sharing of recordings.
- District court dismissed Defender’s breach of contract and bad-faith claims for lack of a covered failure to defend; Defender appeals.
- Seventh Circuit held publication requires communication to a third party, not mere recording/storage by Defender; affirmed dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does 'publication' require third-party communication? | Defender: publication includes recording/storage by Defender, not third-party disclosure. | First Mercury: publication requires communication to a third party. | Publication requires third-party communication; recording alone is not publication. |
| Is the Brown suit within policy coverage given publication meaning? | Defender: recordings constitute publication and thus coverage. | First Mercury: no publication without third-party disclosure, so no coverage. | Brown suit does not fall within the policy's 'publication' coverage. |
| Was dismissal at the pleading stage proper? | Defender: district court should allow discovery to prove publication to third parties. | First Mercury: no duty to defend if the complaint/face of policy shows no coverage; discovery not required to determine non-coverage. | District court proper to grant 12(b)(6) dismissal; Defender failed to plead or allege facts showing coverage. |
Key Cases Cited
- Aearo Corp. v. American International Specialty Lines, Inc., 676 F. Supp. 2d 738 (S.D. Ind. 2009) (duty to defend hinges on covered claim and applicable exclusions)
- Monroe v. Cincinnati Insurance Co., 677 N.E.2d 623 (Ind. Ct. App. 1996) (insurer may refuse to defend when underlying facts cannot support liability under policy)
- Mallon v. Cincinnati Insurance Co., 409 N.E.2d 1100 (Ind. Ct. App. 1980) (standard for when insurer may refuse defense at pleadings stage)
- Newnam Mfg., Inc. v. Transcontinental Ins. Co., 871 N.E.2d 396 (Ind. Ct. App. 2007) (ambiguity in policy terms; construction rules against insurer)
- McReynolds v. Merrill Lynch & Co., 694 F.3d 873 (7th Cir. 2012) (pleading standards; allegations must be plausible, not merely conclusory)
- Reger Development, LLC v. National City Bank, 592 F.3d 759 (7th Cir. 2010) (pleading standards; plausible claim required)
- Doe v. Methodist Hospital, 690 N.E.2d 681 (Ind. 1997) (publication/communication concepts in privacy tort context; third-party communications relevant)
- Bals v. Verduzco, 600 N.E.2d 1353 (Ind. 1992) (defamation publication requires communication to third parties)
- Newnam Mfg., Inc. v. Transcontinental Ins. Co., 871 N.E.2d 396 (Ind. Ct. App. 2007) (ambiguity and strict construction against insurer when reasonable interpretations exist)