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(Article from Insurance Law Alert, May 2015) 

For more information, please visit the Insurance Law Alert Resource Center.

Our January 2014 Alert reported on a Connecticut appellate court decision holding that claims arising out of the accidental loss of computer data were not covered by general liability policies. Recall Total Info. Mgmt., Inc. v. Federal Ins. Co., 83 A.3d 664 (Conn. App. Ct.2014). This month, the Connecticut Supreme Court affirmed. Recall Total Info. Mgmt., Inc. v. Federal Ins. Co., 2015 WL 2371957 (Conn. May 26, 2015). 

The dispute arose out of the loss of computer tapes containing personal data
relating to approximately 500,000 IBM employees. The tapes fell out of a van during their transportation and were never recovered. The transportation company sought indemnification for mitigation and litigation expenses from its liability insurers. The insurers denied coverage. In ensuing litigation, a Connecticut trial court granted the insurers’ summary judgment motion, finding that the losses were not covered by
the policies. An intermediate appellate court affirmed, ruling that the loss of the computer tapes did not constitute a “personal injury,” defined by the policy as injury caused by “electronic, oral, written or other publication of material that … violates a person’s right to privacy.” The court explained that there had been no “publication” of the lost data because there was no evidence (or even allegations) that the personal information had ever been accessed. The court rejected the argument that an invasion of privacy should be presumed because the incident triggered certain obligations under state notification statutes. The appellate court also ruled that the insurers did not waive coverage defenses by breaching their duty to defend. The court explained that there was no duty to defend because no “suit” had been filed and that settlement negotiations were not equivalent to a suit. The Connecticut Supreme Court affirmed the appellate court’s decision, stating that “[w]e … adopt the Appellate Court’s opinion as the proper statement of the issue and the applicable law concerning that issue.”