Second Circuit Finds Knowing Violations Exclusion Does Not Eliminate Duty To Defend Class Actions Alleging Sharing of Private Information
National Fire Ins. Co. of Hartford, et al. v. E. Meshan & Sons, Inc., No. 15-2248 (2d Cir. June 1, 2016). Applying New York law, the Second Circuit Court of Appeals found that Insurers had a duty to defend class actions under the Personal and Advertising Injury coverage of their CGL policies, notwithstanding a “knowing violations” exclusion, because not all of the claims asserted included elements of knowledge or intent. The Insured shared private customer information with a telemarketer, which allegedly attempted to trap customers into recurring credit card charges. The Insured was sued in two class actions alleging statutory violations, fraud by omission, breach of contract, and unjust enrichment. It contended it was entitled to defenses from several Insurers pursuant to the Personal and Advertising Injury coverage portion of their CGL policies. The Insurers sought declaratory judgments that they had no duty to defend by virtue of the exclusion for injury from knowing violations of another’s rights. The district court granted summary judgment for the Insurers, but the Second Circuit reversed in a Summary Order. The Second Circuit reasoned that it could not conclude with certainty that there was no coverage, because conduct that would trigger the knowing violations exclusion was not an element of each cause of action alleged. Even though the plaintiffs in the class actions alleged that the Insured acted knowingly and intentionally, the actual conduct they described did not rule out the possibility that the Insured acted without knowledge or intent. Specifically, the causes of action for breach of contract and for unjust enrichment do not have elements of knowledge or intent. The breach of contract claim was precluded by another exclusion for breach of contract. However, the unjust enrichment claim was not excluded, and as a result, the Insurers had a duty to defend the entirety of the class actions.