Retail Ventures, Inc. v. National Union Fire Insurance
2012 U.S. App. LEXIS 17850
| 6th Cir. | 2012Background
- Hackers accessed plaintiffs' computer system Feb 1–14, 2005 via a DSW store’s wireless network, stealing data for 1.4M customers across 108 stores.
- Fraudulent transactions followed; the FTC and state AG inquiries ensued; plaintiffs incurred communication, public relations, claims, and attorney fees.
- Largest losses (> $4M) stemmed from compromised credit card data and related chargebacks, reissuance, monitoring, and fines; settlement with BA Merchant Services fixed amount.
- Plaintiffs’ insurance claim sought coverage under Endorsement 17, 'Computer & Funds Transfer Fraud Coverage'; National Union denied coverage in Jan 2006 and again thereafter.
- District court granted summary judgment for plaintiffs on coverage and denied bad faith; the parties then stipulated losses for judgment and prejudgment interest; defendant appealed and plaintiffs cross-appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 'loss resulting directly from' computer fraud requires proximate causation | Plaintiffs: proximate cause standard applies. | Defendant: language requires sole/immediate cause (direct-means-direct). | Ohio proximate-cause standard applied |
| Does Exclusion 9 for 'loss of proprietary information' bar coverage | Exclude from coverage did not clearly apply to customer data. | Customer data qualifies as proprietary/confidential information. | Exclusion not clearly applicable; coverage not excluded |
| Whether insurer acted in bad faith in denying coverage | Bad faith due to incomplete/inconsistent opinions; denial lacking reasonable basis. | Investigation and denial were reasonable; second opinion appropriate. | Insurer did not breach good faith; no bad-faith liability |
Key Cases Cited
- RBC Mortgage Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 812 N.E.2d 728 (Ill. App. 2004) (proximity-based approach in fidelity bonds; direct loss language interpreted narrowly)
- Vons Cos. v. Fed. Ins. Co., 212 F.3d 489 (9th Cir. 2000) (no coverage for third-party liability from employee misconduct)
- Union Planters Bank, N.A. v. Cont’l Cas. Co., 478 F.3d 759 (6th Cir. 2007) (direct loss standard in fidelity bonds)
- Scirex Corp. v. Fed. Ins. Co., 313 F.3d 841 (3d Cir. 2002) (proximate-cause discussions in direct-loss contexts)
- FDIC v. Nat’l Union Fire Ins. Co. of Pittsburgh, 205 F.3d 66 (2d Cir. 2000) (application of proximate cause in insurance coverage questions)
- Jefferson Bank v. Progressive Cas. Ins. Co., 965 F.2d 1274 (3d Cir. 1992) (proximity and causation principles in insurance contexts)
- Frontline Processing Corp. v. Am. Econ. Ins. Co., 149 P.3d 906 (Mont. 2006) (proximate-cause approach to direct loss under fidelity-like coverage)
- Auto Lenders Acceptance Corp. v. Gentilini Ford, Inc., 854 A.2d 378 (N.J. 2004) (proximate cause / direct loss notions in employee dishonesty context)
- Yunker v. Republic-Franklin Ins. Co., 442 N.E.2d 108 (Ohio App. 1982) (proximate-cause approach to determine direct loss under windstorm policy)