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Texas Federal District Court Dismisses Claim for Coverage of Attorneys’ Fees Incurred to Recover PCI Assessments Withheld by Card Processor

Blogs, Insurance Coverage

Spec’s Family Partners Ltd. v. Hanover Ins. Co., Case. No4:16-cv-00438 (U.S.D.C., S.D. Tex. March 15, 2017).Visa and MasterCard issued $9.5 million in liability assessments to Spec’s, a chain of liquor stores in Texas. To meet these, a card processing company withheld $4.2 million in receipts. Specs sued the processor, and argued that Hanover should pay for the lawyers in an action seeking recovery of the withheld amounts. Hanover had entered into a defense funding agreement, but argued that fees to recover the withheld receipts are not defense costs. Hanover’s motion to dismiss on the pleadings was granted. The court’s reasoning is not known because the explanatory memorandum was filed under seal. Hanover’s arguments included (1) the decision to sue the processor was affirmative and not covered by the defense funding agreement, and (2) the suit did not include any counterclaim or other affirmative action against Spec’s, so there was no “claim” to defend. Hanover also asserted that a report on an earlier breach constituted prior notice.