The Daniell plaintiffs asserted four counts against Emson in an Illinois trial court:

(1) violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS § 505/1 et seq.) (“ICFA”);

(2) fraud by omission;

(3) breach of contract; and

(4) unjust enrichment.

The Herman plaintiffs asserted five counts against Emson in a federal district court in Michigan:

(1) violations of the Michigan Consumer Protection Act (M.C.L. § 445.903 et seq.) (“MCPA”); (2) fraud by omission;

(3) breach of contract;

(4) unjust enrichment; and

(5) violations of the federal Telephone Consumer Protection Act (47 U.S.C. § 227 et seq.) (“TCPA”).

After the underlying lawsuits had been filed, the insurers filed an action in the U.S. District Court for the Southern District of New York seeking a declaratory judgment that they were not required to defend Emson in the underlying lawsuits.

The district court granted summary judgment to the insurers, concluding that “all of the allegations” against Emson in the underlying lawsuits fell into the coverage exclusion for “personal and advertising injury” caused by knowing violations of another's rights.

In so concluding, the district court noted that it was “readily apparent that Emson's alleged conduct was intentional and knowing,” as the underlying complaints alleged that “Emson intentionally passed along the consumers' private information as part of a scheme to defraud those consumers.”

Emson appealed to the Second Circuit, principally arguing that the district court had misapplied the knowing violation exclusion in finding that it relieved the insurers of their duty to defend Emson in the underlying lawsuits.

The Policies

The policies provided coverage for:

those sums that the insured becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies.

The policies defined:

personal and advertising injury

to include the:

[o]ral or written publication, in any manner, of material that violates a person's right of privacy

The policies excluded coverage for personal and advertising injuries for knowing violations of another's rights, defined as:

“[p]ersonal and advertising injury” caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury”

The Second Circuit, applying New York law, reversed, holding that the district court had improperly determined that the insurers did not have a duty to defend Emson in the underlying lawsuits pursuant to the knowing violation exclusion.

In its decision, the circuit court explained that the duty to defend exists “until it is determined with certainty that the policy does not provide coverage.” It then stated that it could not “conclude with certainty” that the policies did not provide coverage “because the conduct triggering the knowing violation policy exclusion is not an element of each cause of action.” Therefore, the circuit court continued, Emson could be liable to the underlying plaintiffs “even absent evidence that it knowingly violated its customers' right to privacy.” Furthermore, it said, although the underlying plaintiffs alleged generally that Emson had acted knowingly and intentionally, the “actual conduct described” did “not rule out the possibility that Emson acted without intent to harm.”

The Second Circuit observed that the underlying lawsuits both asserted claims against Emson for breach of contract and unjust enrichment – “neither of which require a showing of knowledge or intent.” Accordingly, it said, Emson could be held liable in the underlying lawsuits without a finding that Emson had “cause[d]” or had “direct[ed]” the alleged injury “with the knowledge that the act would violate the rights of another and would inflict 'personal advertising injury'” as required by the knowing violation exclusion in the policies. Simply put, it declared, the district court had “erred in ruling otherwise.”

The circuit court concluded that because no exclusion barred coverage for the unjust enrichment claims against Emson, and because this was a case where “several claims [arose] from the same set of facts” and where at least one of the claims was covered by the policies, the insurers had a duty to defend the entire actions, including the uncovered claims.

The case is National Fire Ins. Co. of Hartford v. E. Mishan & Sons, Inc., No. 15−2248 (2d Cir. June 1, 2016). Attorneys involved include: FOR APPELLANT: PATTI M. DEUEL (Howard B. Randell, on the brief), Leahy, Eisenberg & Fraenkel, Ltd., Chicago, IL; FOR APPELLEES: BARRETT ARNOLD BREITUNG, Colliau Carluccio Keener Morrow Peterson & Parsons, Chicago, IL (Lisa Schreiber, Colliau Carluccio Keener Morrow Peterson & Parsons, New York, NY, on the brief).