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Eleventh Circuit Holds “Knowing Violation” Exclusion Does Not Preclude Insurer’s Duty to Defend Insured in FACTA Suit

Blogs, Insurance Coverage

The United States Court of Appeals for the Eleventh Circuit recently considered whether an insurer has a duty to defend its insured for allegedly willful violations of the Fair and Accurate Credit Transaction Act (“FACTA”) which prohibits the printing of more than the last five digits of a credit card number upon any receipt provided to the cardholder. Travelers Prop. Cas. Co. of America v. Kansas City Landsmen, CA 14-11006 (11th Cir. Jan. 12, 2015). 

Travelers Property and Casualty Company of America (“Travelers”) issued a number of primary general liability policies, and St. Paul Fire and Marine Insurance Company (“St. Paul”) issued a number of excess liability policies to a group of car rental companies.  The car rental companies were sued in a class-action lawsuit for alleged violations of FACTA.

The United States District Court for the Northern District of Georgia held the insurers had no duty to defend or indemnify because the underlying suit sought relief as a result of willful violations of FACTA, thus triggering the exclusions for knowing violations.  On appeal, the Eleventh Circuit concluded that the underlying complaint alleged only that the violations were willful, as opposed to knowing.  Thus, the possibility existed that the insureds acted only with reckless disregard with respect to their customers’ rights, in which case the exclusions would not apply.  The Court then went on to consider whether the allegations in the underlying suit might qualify as covered “personal injury” under Part B of the policies.  This inquiry was not undertaken by the District Court. 

Part B of the Travelers policies provided coverage for “personal injury” to third parties.  A policy endorsement defined “personal injury” as “ injury, other than ‘bodily injury,’ arising out of one or more of the following offenses: … oral, written, or electronic publication of material that appropriates a person’s likeness, unreasonably places a person in a false light or give unreasonable publicity to a person’s private life.”  The St. Paul policies defined “personal injury” as injury caused by the oral, written or electronic publication of material that violates a person’s right to privacy. The parties agreed that the term “publication” contemplates dissemination to at least someone other than the person who provided the card information.  

The Court posed the determinant question as (a) whether the underlying complaint arguably alleged that the insureds provided non-truncated credit receipts to people other than the owners of the credit cards, and (b) whether FACTA prohibits vendors from providing non-truncated credit receipts to people other than the owners of the credits cards.  The Court noted that if the answer to these questions is yes, then the insurers would have a duty to defend.  However, because it found that the issue was one of the first impression, the resolution of it would benefit from a briefing by the parties and the Federal Trade Commission which is charged with administering the Fair Credit Reporting Act, which FACTA amended, it reversed the District Court’s ruling and remanded.  The District Court must now address whether the underlying complaint triggered Part B coverage.