The Northern District of California not too long ago rejected an insurer’s try at avoiding its obligation to defend the insured primarily based on misguided software of a previous data exclusion. The case highlights the breadth of an insurer’s obligation to defend and reiterates that to keep away from this obligation, “it’s the insurer’s burden to show there isn’t any attainable idea that might deliver a single subject inside protection.”
Case Background
After buying BetterHelp in 2015, BetterHelp’s proprietor bought an insurance coverage coverage from CNA in 2016 that included protection for any “Enterprise Legal responsibility” declare introduced in opposition to an insured, together with Community Safety Legal responsibility, Privateness Damage Legal responsibility, Privateness Regulation Proceedings, and Privateness Regulation Fines. This protection was repeatedly renewed, offering protection by means of August 1, 2022.
On June 8, 2022, the FTC despatched BetterHelp a draft administrative criticism which alleged that BetterHelp violated the FTC Act by disclosing shopper well being data to third-parties with out consent. BetterHelp promptly supplied discover of the criticism to CNA. BetterHelp and the FTC then entered right into a consent settlement in March 2023 during which BetterHelp agreed to pay a fantastic. 5 days after the FTC settlement, BetterHelp was sued in a putative class motion lawsuit (“Class Motion”) alleging violations underneath state and federal legislation, together with alleged violations of the Digital Client Privateness Act between January 2017 and September 2021 primarily based on the disclosure of confidential person data to 3rd events.
BetterHelp tendered the Class Motion to CNA for a protection, however CNA denied protection for each the Class Motion and the FTC criticism primarily based on two protection defenses. First, CNA argued that Part D of the coverage precluded protection as a result of the insured had “government data of wrongful acts previous to the coverage interval” primarily based on a civil investigative demand from the FTC in 2020. Part D circumstances protection on “previous to the inception date of [the] Coverage or the primary such coverage issued and repeatedly renewed by the Insurer, of which this Coverage is a renewal, whichever is earlier: no Govt Officer knew or ought to have identified that any such Wrongful Act, or Associated Wrongful Acts, may end in such Declare.” Second, CNA argued that the Class Motion alleged wrongful acts occurring earlier than the coverage interval in order that the Prior Wrongful Acts exclusion utilized.
BetterHelp and its company dad or mum, Telacom, introduced swimsuit in opposition to CNA, searching for protection for the Class Motion. The policyholders moved for judgment on the pleadings.
The Courtroom’s Determination
The courtroom rejected CNA’s arguments and dominated that CNA had an obligation to defend. The courtroom first reiterated California legislation on the obligation to defend. Like in all different states, in California, the obligation to defend is broader than the obligation to indemnify. It’s triggered at any time when the underlying criticism raises the likelihood that there could also be protection. The burden then shifts to the insurer to indicate that an exclusion applies and that there’s “no conceivable idea” that may deliver the lawsuit inside protection.
Turning to the exclusions that CNA raised, the courtroom rejected CNA’s rivalry that Part D utilized to bar protection. The courtroom discovered that CNA had not conclusively confirmed that BetterHelp executives had data of the alleged wrongful acts at subject within the Class Motion previous to the inception of the coverage in August 2021. Whereas CNA pointed to a publicly out there report stating that the FTC had served a civil investigative demand (CID) on BetterHelp in July 2020, the courtroom identified that the general public discover didn’t state the subject material of the investigation so CNA couldn’t conclusively present that the CID was, actually, related to the Class Motion or that executives had data of the wrongful acts alleged within the Class Motion at the moment.
Second, the courtroom turned to prior data exclusion and rejected CNA’s arguments there as properly. This exclusion applies if the declare arises out of wrongful acts that occurred earlier than the named insured bought BetterHelp on January 23, 2015. The courtroom said that the exclusion doesn’t apply as a result of the Class Motion “doesn’t fully come up out of pre-2015 acts given the ECPA claims, which come up in 2017.” The courtroom defined that the draft FTC criticism and the Class Motion distinguished between two ways in which BetterHelp improperly disclosed person well being data, one in every of which started earlier than 2015 and the opposite of which started in 2017. As a result of there was no hyperlink between the pre-2015 occasions and the complete motion didn’t come up out of the pre-2015 conduct, the courtroom held that the exclusion doesn’t apply.
Takeaways for Insureds
The courtroom’s choice underscores the in-depth factual evaluation required for software of a previous data or prior discover exclusion to keep away from protection. Policyholders ought to push again on insurer makes an attempt to broadly apply prior data or prior discover exclusions to distinct claims and distinct wrongful acts. Additional, policyholders and insurers alike needs to be cognizant of the in-depth factual evaluation required for a courtroom to rule on software of those exclusions. Lastly, the choice highlights a procedural apply pointer for the insurance coverage protection bar, noting that “[a]lthough a 12(c) movement mirrors a 12(b)(6) movement and inferences needs to be drawn in favor of the nonmoving occasion, the obligation to defend nonetheless locations the burden on the insurers … to ascertain that coverage exclusions apply and that there isn’t any chance {that a} declare can fall inside coverage protection.”