Recall Total Infomation Management, Inc. v. Federal Insurance Co.
2014 Conn. App. LEXIS 6
Conn. App. Ct.2014Background
- Recall stored IBM computer tapes containing personal data for ~500,000 current/former employees; Ex Log (subcontractor) lost ~130 tapes during transport and the tapes were not recovered.
- IBM incurred and claimed over $6 million in remediation costs (employee notice, call center, credit monitoring) and settled with Recall for that amount; Recall then sought indemnification from Ex Log and assigned Ex Log’s insurance rights to Recall.
- Ex Log’s CGL and umbrella insurers (Federal and Scottsdale) denied coverage; Recall/Ex Log sued for breach of insurance contract. Defendants moved for summary judgment on coverage and duty-to-defend grounds.
- The trial court granted summary judgment for the insurers, holding (1) insurers had no duty to defend because the policy’s duty applied only to a "suit" (not mere negotiations), and (2) the data loss did not constitute a "personal injury" because there was no evidence the personal information was accessed or "published." Plaintiffs appealed.
- On appeal, the court affirmed: negotiations did not constitute a "suit," insurers did not waive defenses, and absent proof of access/publication, remedial notification costs were not covered as personal injury.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurers waived coverage defenses by refusing to defend settlement negotiations | Negotiations following IBM’s demand were a "suit" or "other dispute resolution proceeding," triggering a duty to defend; denial = waiver | Policy duty is limited to a "suit" (civil proceeding) and consensual ADR; mere negotiations/demand letters are "claims," not suits; no insurer consent here | Insurers did not breach duty to defend; negotiations are not a "suit," and insurers did not consent to any dispute-resolution proceeding, so no waiver of defenses |
| Whether loss of tapes is a "personal injury" under policy (privacy/publication) | Loss of tapes (and alleged possession by thief) equals publication/violation of privacy; notification costs are damages for personal injury | Policy requires publication (access/disclosure) of personal information; parties stipulated no persons suffered identity theft and no evidence of access/publication exists | No coverage: personal injury requires publication of the data; record lacks evidence the information was accessed or published, so settlement/notification costs not covered |
| Whether triggering statutory notification requirements creates a presumption of invasion of privacy | Statutory notification obligations (NY and CT) imply a presumptive privacy invasion and thus personal injury coverage | Statutes mandate notice to enable protection, not compensation for identity theft; triggering notice duty does not itself establish a compensable privacy invasion under the policy | No presumption: compliance costs from notification statutes do not substitute for proof of a privacy invasion or publication required by policy; thus not covered |
Key Cases Cited
- Black v. Goodwin, Loomis & Britton, Inc., 239 Conn. 144 (1996) (insurer breach of duty to defend can bind insurer to a good-faith settlement)
- R.T. Vanderbilt Co. v. Continental Casualty Co., 273 Conn. 448 (2005) (distinguishing a "claim" from a "suit"; demand letters are claims, not suits)
- QSP, Inc. v. Aetna Casualty & Surety Co., 256 Conn. 343 (2001) (coverage denied where plaintiff cannot prove a fundamental element of the underlying tort)
- National Grange Mut. Ins. Co. v. Santaniello, 290 Conn. 81 (2009) (principles for interpreting insurance policies and ambiguity rules)
- Metropolitan Life Ins. Co. v. Aetna Cas. & Sur. Co., 249 Conn. 36 (1999) (insured bears burden to show underlying claims fall within policy coverage)