Accountant Not Covered for Claims after Computer Disc with Clients’ Confidential Information Was Stolen from Her Car

While employed as an accountant at an accounting firm, Jeanne Hentz had a compact disc belonging to the firm stolen from her personal vehicle, which was parked at her house. The compact disc contained confidential information belonging to some of her employer’s clients. Those clients sued Hentz in Illinois state court for credit monitoring and insurance expenses incurred to mitigate potential misuse of the stolen information. She tendered the defense of the state action to her homeowner’s insurance company. 

The insurer disclaimed coverage and, after it sought a declaration that it had no duty under Hentz’s insurance policy to defend or indemnify her, a federal district court granted summary judgment in favor of the insurer. The clients appealed to the U.S. Court of Appeals for the Seventh Circuit. 

The Circuit Court Ruling 

The Seventh Circuit first ruled that there was no coverage because of the policy’s exclusion for “‘[p]roperty damage’ to property rented to, occupied or used by or in the care of the ‘insured.'”  The circuit court found that the compact disc was within Hentz’s exclusive possessory control at the time it was stolen and that it was a “necessary element” of the work she performed because the handling and care of confidential client information was vital to Hentz’s work as an accountant. 

The circuit court also examined whether the policy’s “business” exclusion precluded coverage, and decided that it did.  As the Seventh Circuit explained, the business exclusion did not cover “‘property damage’ arising out of or in connection with a ‘business’ . . . engaged in by an ‘insured’, whether or not the ‘business’ is owned or operated by an ‘insured’ or employs an ‘insured.'” It reasoned that the accounting firm for which Hentz worked was a “business”; she had a duty to safeguard the confidential information on the compact disc because she was an accountant employed by the firm; and her alleged failure to safeguard the compact disc was an omission amounting to a breach of that duty. Therefore, it concluded, the policy’s “business” exclusion also applied. 

The case is Nationwide Ins. Co. v. Central Laborers’ Pension Fund, No. 12-1784 (7^th Cir. Jan. 11, 2013).