Ninth Circuit Rules No Duty to Defend Where Underlying Claims Were All Based on Allegations of Statutory Violations
Big 5 Sporting Goods Corp. v. Zurich Am. Ins. Co., 2015 U.S. App. LEXIS 21185 (9th Cir. Oct. 21, 2015)
In Big 5, the Ninth Circuit affirmed the district court’s ruling and held that because all of the underlying claims arose from the alleged violation of a statutory right to privacy, coverage was barred by the applicable policies’ statutory violations exclusions, and the carriers had no duty to defend.
Big 5 involved two different carriers with similar policy exclusions. The first policy barred coverage for personal and advertising injury arising directly or indirectly out of any action or omission that violates or is alleged to violate any statute. The second policy barred coverage for personal and advertising injury arising out of the violation of a person’s right of privacy created by any state or federal act, and also contained a second exclusion barring coverage for personal and advertising injury arising directly or indirectly out of any action or omission that violates or is alleged to violate any statute that prohibits or limits the sending, transmitting, communicating, or distribution of material or information. The District Court held that these provisions barred coverage for statutory violations, as well as any act or omission that arose directly or indirectly from an alleged violation of a statute, and the Ninth Circuit affirmed that ruling.
The underlying claims alleged so-called “ZIPcode violations” of the Song-Beverly Act, which created a statutory right of privacy. Among other things, the Song-Beverly Act prohibits entities who accept credit cards in business transactions from requiring a cardholder to write or provide personal identification information, such as zip codes, on the transaction form. The insured argued that in addition to the statutory violations, it was forced to defend common law and California constitutional right to privacy claims that were separate from the violations of the Song-Beverly Act. The Ninth Circuit rejected this argument, finding instead that California law does not recognize any common law or privacy right causes of action for requesting, sending, transmitting, communicating, distributing, or commercially using any zip codes. The court found that the only possible claim was for statutory penalties, not common law damages. Thus, the Ninth Circuit held that the right to privacy claims against the insured did not entitle it to a defense because they were not viable as a matter of law and constituted improper “boilerplate pleading,” and agreed with the district court that because all of the underlying claims arose from violations of the Song-Beverly Act, the carriers had established as a matter of law that there was no conceivable theory under which the claims in the underlying actions warranted coverage.
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