The Eighth Circuit Court of Appeals found that an insurer had a duty to defend its insured in actions brought against the insured by the Federal Trade Commission and the Missouri Attorney General but not for an action brought by the Iowa Attorney General. The case is State Farm Fire & Cas. Co. v. National Research Center for College and University Admissions, No. 05-1588 (8th Cir. Mar. 13, 2006).
The National Research Center for College and University Admissions (NRCCUA) distributes the results of its high school student surveys to colleges and universities. The Federal Trade Commission (FTC) investigated the commercial use of the survey results and the survey funding. Although the FTC told NRCCUA that it was going to seek “all remedies available,” it “eventually ordered NRCCUA to stop misrepresentations and to make clear and conspicuous disclosures,” but NRCCUA did not make any payments to the FTC.
NRCCUA was also investigated by several states' attorneys general for consumer protection law violations. Iowa demanded $300,000 from NRCCUA as part of an Assurance of Voluntary Compliance. In another Assurance, Missouri demanded $20,000 from NRCCUA.
NRCCUA was insured by State Farm under a business liability policy, which promised to pay “those sums that the insured becomes legally obligated to pay as damages because of…personal injury or advertising injury to which this insurance applies.” The term “damages” was not defined.
State Farm sought a declaratory judgment that it was not required to indemnify, reimburse, or defend NRCCUA. State Farm argued that the payments required by the state attorneys general were not caused by personal or advertising injuries. The court, however, stated that “the FTC and the state attorneys general allege a personal injury for invasion of privacy.”
State Farm also argued that the term “damages” did “not include the kinds of payments sought by regulatory agencies from regulated businesses.” The court, though, said that “the term 'damages' is broad and includes equitable relief seeking money.” Therefore, the court concluded that “civil damages sought by the FTC would benefit the public at large, and thus are 'damages.'” State Farm also had a duty to defend the insured against the FTC claims.
The Assurances of Voluntary Compliance were a little different. Some of the amounts requested were to reimburse attorney fees and investigation costs, and Missouri courts have held such expenses to be “clearly punitive in nature”—not damages.
On the other hand, the Missouri Attorney General also requested $15,000 to be applied to the Custodian of the Public School Fund, and because the personal injury was inflicted on high school students, the court deemed this amount compensation and held it to be “damages.”