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Hartford, Liberty absolved of duty to defend in spyware cases

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Neither the Hartford Insurance Group nor Liberty Mutual Group are obligated to provide defense coverages in two cases involving spyware that was placed on rented computers, says a federal appeals court, in affirming lower court rulings that were partly based on policy exclusions.

The complex litigation in American Economy Insurance Company, et al. v. Hartford Fire Insurance Company, involves two separate cases:  Crystal and Brian Byrd had filed a lawsuit against Atlanta-based Aarons Inc. and franchisee Aspen Way Enterprises, among others, charging violation of the Electronic Communications Privacy Act. The couple charged Aspen Way had installed spyware on their rented computer. Both Hartford and Liberty Mutual agreed to defend Aspen Way subject to a reservation of rights.

In the second case, the state of Washington sued Aspen Way in state court charging it had violated the state’s Consumer Protection Act and Computer Spyware Act regarding the installation of spyware. The state and Aspen Way subsequently entered a consent decree ending the case.

Hartford Insurance Group units Hartford Fire Insurance Company and Hartford Casualty Insurance Company filed a motion for summary judgment in U.S. District Court in Billings, Montana, seeking a declaration that they did not owe Aspen Way a duty to defend.

On Sept. 25, 2015, the District Court granted Hartford summary judgment based on an exclusion in its policy for “distribution of materials in violation of statutes.” The court held Hartford was not required to provide a defense in the Byrd case because it was charged with violating the Electronic Communications Privacy Act.

In a ruling issued the same day, the District Court also granted, on essentially the same grounds, summary judgment to Liberty Mutual units American Economy Insurance Company; American States Insurance Company and General Insurance Co. of America.

In the Washington case, the District Court said Hartford was not obligated to provide a defense because, as Aspen Way had conceded, its alleged misconduct began after its policies had expired.

In the case of the Liberty Mutual units, the District Court concluded that coverage was not triggered because the “The State did not allege the requisite ‘publication’ to trigger coverage for ‘personal and advertising injury.’ ”

A unanimous three-judge panel of the U.S. Circuit Court of Appeals in San Francisco upheld the District Court’s decision in a brief ruling that covered both cases and insurers.