The September 25, 2015 American Economy Ins. Co. v. Aspen Way Enter. decision provides another example of new technology causing problems under traditional insurance policies. The insured in this case, Aspen Way, is a franchise of Aaron’s Inc., which operates “rent-to-own” stores in Montana, Washington and Wyoming. Aspen Way sought coverage for the two related actions:
- The Byrd Action: In a class action lawsuit against Aspen Way, Crystal and Brian Byrd alleged Aspen Way rented them a laptop with software installed that allowed Aspen Way to monitor the use of the computer. Specifically, the Byrds claimed that when Aspen Way attempted to repossess the laptop the store manager showed Mr. Byrd a picture of the Byrds using the laptop. The Byrds discovered that Aspen Way took the picture using software called “PC Rental Agent.” When this software is installed on a computer, Aspen Way was able to secretly take photographs of the users with the computer’s webcam, capture keystrokes and take screen shots. This information gathered was sent to Aspen Way. The Byrds claimed Aspen Way used this software to gather private information, including, but not limited to, private emails, keystroke logs, passwords, bank and credit care statements, Social Security numbers and webcam photos of individuals “in various states of undress.” The Byrds claimed more than 800 customers had their personal information transmitted and gathered by Aspen Way and Aaron’s franchises.
- The Washington Action: The State of Washington also filed its own legal action against Aspen Way alleging similar actions to the Byrd Action. The State claimed Aspen Way used this software to relay private information without properly notifying its customers.
Aspen Way tendered its defense for the Byrd Action and the Washington Action under three primary policies and three umbrella policies issued by Liberty Mutual. Liberty Mutual initiated a declaratory judgment action stating it did not owe Aspen Way a duty to defend. The first question analyzed by the District Court was whether the allegations constituted “personal and advertising injury” under the CGL policies issued to Aspen Way.
The CGL policies defined “personal and advertising injury” as “[o]ral or written publication, in any manner, of material that violates a person’s right of privacy.” While the term “publication” was not defined in the policies, the District Court adopted a broad definition of “publication” that would potentially include the underlying allegations that Aspen Way caused injury when it collected personal information and transferred it to third parties. The District Court found the allegations in the Byrd Action could potentially trigger coverage under the definition of “personal and advertising injury” but found no allegations in the Washington Action that amounted to “publication.”
While the District Court found the allegations potentially triggered coverage for the Byrd Action under the CGL policies issued to Aspen Way, the court ultimately found coverage was barred by exclusions in the policies. Specifically, the court held the Recording and Distribution Exclusion, which precludes coverage for any action arising under any statute that prohibits collecting or transmitting material information, was applicable to the claims against Aspen Way. The District Court held there was no coverage for the Byrd Action since the class action was based on alleged violations of the Electronic Communications Privacy Act (ECPA) when Aspen Way used the software to monitor its customers. The court opined that the ECPA is a federal statute that prohibits the disclosure or use of intercepted electronic communications. Therefore, the Byrds’ allegations that Aspen Way collected and transmitted communications is not covered under the policies.
This decision provides another example of two sophisticated parties struggling with insurance coverage issues related to new technology. It provides an example of what can happen when a corporation is sophisticated enough to develop and implement new technology but fails to consider the insurance implications of its developments. While this case demonstrates that insureds must consider their insurance coverage before adopting any new technology in their businesses, this case also shows the importance of insurers keeping up on technological developments in order to issue the proper exclusions if they have no intention of assuming the risk of new technology.