155 F. Supp. 3d 706
S.D. Tex.2016Background
- Gene by Gene Ltd., operator of FamilyTreeDNA, was sued in Alaska (Cole) alleging it published customers' DNA results without informed written consent, violating Alaska's Genetic Privacy Act.
- Evanston Insurance Company issued Gene by Gene two Professional Liability policies (duty to defend) and two Excess Liability policies; Gene by Gene sought defense and indemnity under those policies.
- Evanston denied coverage relying on a policy exclusion titled “Electronic Data and Distribution of Material in Violation of Statutes,” which bars claims arising from statutes that prohibit or limit sending, transmitting, communicating, or distributing information (including TCPA and CAN-SPAM and similar laws).
- The Professional Liability policies define covered “personal injury” to include publication that violates a person’s right of privacy; the underlying complaint alleges publication of DNA analyses and disclosure to third parties.
- The central dispute was whether the Genetic Privacy Act claim falls within covered personal-injury/adverting-injury coverage or is excluded under Section C of the statute-based exclusion.
- The district court applied Texas law and the eight-corners rule, concluded the Genetic Privacy Act claim is within coverage and not excluded, and held Evanston breached its contractual and statutory duties by refusing to defend and delaying payment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Cole complaint alleges a covered “personal injury”/advertising injury | The complaint alleges written publication of DNA results that violated privacy rights, which fits the policy’s personal-injury definition | (N/A — insurer conceded coverage argument contested by insurer via exclusion) | The complaint potentially alleges covered personal-injury based on publication of DNA analyses, so initial coverage established |
| Whether the policy exclusion for statutes prohibiting communication (Section C) bars coverage for a Genetic Privacy Act claim | The exclusion should be narrowly read (ejusdem generis): it targets unsolicited-communication statutes like TCPA and CAN-SPAM, not statutes regulating disclosure of genetic information | The Genetic Privacy Act prohibits disclosure/distribution of information and thus falls squarely within Section C’s language | Court adopted insured’s reasonable construction: Section C targets statutes like TCPA/CAN-SPAM; the Genetic Privacy Act does not regulate unsolicited communications and therefore is not excluded |
| Whether insurer's construction would render coverage illusory (i.e., swallow personal-injury/adverting-injury coverage) | Insurer’s broad reading would exclude statutory and common-law privacy and defamation claims, making coverage illusory | Insurer argued many traditional common-law claims remain covered unless a statute specifically governs them | Court found insurer’s construction problematic; because insured’s narrower reading was reasonable (and any ambiguity favors insured), exclusion did not apply |
| Remedies for insurer’s refusal/delay to defend/indemnify | Gene by Gene sought declaration of duty to defend/indemnify, breach of contract, and statutory extra-contractual remedies under Tex. Ins. Code ch. 542 | Evanston denied duty and delayed payment | Court held Evanston breached contract by refusing defense/indemnity and violated Tex. Ins. Code ch. 542 by delaying payment over 60 days; summary judgment for Gene by Gene granted |
Key Cases Cited
- Test Masters Educ. Servs., Inc. v. State Farm Lloyds, 791 F.3d 561 (5th Cir. 2015) (explaining eight-corners rule and duty-to-defend analysis under Texas law)
- Ewing Constr. Co. v. Amerisure Ins. Co., Inc., 420 S.W.3d 30 (Tex. 2014) (courts must look to underlying pleadings’ factual allegations under eight-corners rule)
- Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) (insured bears initial burden to establish coverage; insurer must prove exclusion)
- RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113 (Tex. 2015) (unambiguous policy construction when only one reasonable interpretation exists; ambiguity resolved for insured)
- Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) (court will not adopt a construction that renders policy language illusory)
- Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487 (Tex. 2008) (if underlying complaint potentially includes a covered claim, insurer must defend entire suit)
- Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (insurer liable under Tex. Ins. Code ch. 542 for wrongfully refusing or delaying defense benefits)
- Liberty Lobby, Inc. v. Anderson, 477 U.S. 242 (summary judgment standards regarding genuine disputes of material fact)