Lloyd’s Must Defend Merchant From Privacy Law Suit

Lloyd’s of London must defend a merchant against a lawsuit that accused it of violating a California privacy law by selling information about its customers, a federal appellate court ruled, reversing a lower court.

The 9th Circuit Court of Appeals ruled that District Court Judge John F. Walter in Los Angeles erred by ruling Lloyds of London had no duty to defend Brighton Collectibles in a lawsuit because the underlying allegations were not a privacy law violation that would trigger coverage under the policy.

The appellate court said it didn’t matter whether Lida Yeheskel is likely to win her lawsuit when deciding whether Lloyd’s has to defend against it.

“Under California law, an insurer has a duty to defend its insured unless ‘there is no potential for coverage,'” the court said. “To trigger this duty, ‘the insured need only show that the underlying claim may fall within policy coverage.'”

The decision in Brighton v. Certain Underwriters at Lloyd’s was not published, meaning it holds no precedential value.

Yeheskel filed a lawsuit in the Ventura County Superior Court alleging that Brighton Collectibles violated California’s Song-Beverly Credit Card Act when an employee at its Thousand Oaks store asked for her full name, email address, residence address and telephone number when she purchased an item with her credit card. She alleged either that Brighton sells the personal information to third-parties or collects the information for its own marketing purposes. Either use of the data would be a violation of California law, according to the suit.

Brighton asked Lloyds to defend it from the lawsuit under a business owner’s liability policy that provided coverage for a personal injury caused by the business or an “advertising injury.”

Lloyd’s denied the claim. The insurer argued that the policy clearly excluded any publication, broadcasting or telecasting done by Brighton itself. An attorney for Lloyds, Tami Kay Lee of West Covina, told the 9th Circuit panel during oral arguments that although the policy provided coverage for violations of privacy law, it was intended to cover only actions of third-parties, such as by hackers who breached the company’s computer security.

The 9th Circuit panel rejected that argument.

“Such a reading would exclude coverage for virtually any publication over which Brighton might realistically be sued, rendering the policies’ express coverage for publications that violate privacy rights ‘practically meaningless,'” the opinion says.

The court reversed Judge Walter’s decision and remanded the case back to the district court for further proceedings.