Policies Did Not Cover Loss of Computer Tapes in Absence of “Publication” of their Information, Connecticut Supreme Court Holds

The Connecticut Supreme Court, affirming an intermediate appellate court’s decision, has ruled that a commercial general liability insurance policy and an umbrella liability policy did not cover claims for damages stemming from the insureds’ loss of computer tapes containing confidential employee information in the absence of evidence that the information had been “published.”

The Case

Recall Total Information Management, Inc. contracted with International Business Machines to transport and store computer tapes containing personal information of current and former IBM employees. Recall subsequently subcontracted with Executive Logistics Services, LLC (“Ex Log”) to provide transportation services for the tapes.

In connection with these agreements, Federal Insurance Company and Scottsdale Insurance Company issued, respectively, a commercial general liability policy and an umbrella liability policy to Ex Log, both of which policies named Recall as an additional insured.

Ex Log lost computer tapes when they fell from Ex Log’s truck onto the roadside and were retrieved by an unknown individual. There was no evidence that anyone ever accessed the information on the tapes or that their loss caused injury to any IBM employee, but IBM spent significant sums providing identity theft services and, in informal negotiations, sought reimbursement of those sums from Recall and, by extension, Ex Log.

The insurers were notified of the loss of the computer tapes and the settlement negotiations but declined to participate in those negotiations or to provide coverage under the policies to Recall and Ex Log.

Thereafter, Recall and Ex Log sued the insurers for breach of the insurance contracts.

The insurers moved for summary judgment with respect to the breach of contract count on the basis that, as a matter of law, they had no duty to defend Recall and Ex Log in the settlement negotiations and their loss was not covered by the policies.

The trial court granted the insurers’ motions for summary judgment, concluding that the losses suffered by Recall and Ex Log were not within the scope of the policies’ personal injury clauses.

An intermediate appellate court affirmed, and the case reached the Connecticut Supreme Court.
The Connecticut Supreme Court’s Decision

The Connecticut Supreme Court affirmed.

In its decision, the court pointed out that the policies defined “personal injury” as an “injury … caused by an offense of … electronic, oral, written or other publication of material that … violates a person’s right of privacy….”

It then adopted the appellate court’s reasoning that the loss of the computer tapes did not constitute a “personal injury” as defined by the policies because there had been no “publication” of the information stored on the tapes resulting in a violation of a person’s right to privacy.

The case is Recall Total Information Management, Inc. v. Federal Ins. Co., No. SC 19291 (Conn. May 26, 2015).

Rivkin Comment

A similar issue was recently before a New York appellate court in the Sony PlayStation data breach case, but the parties settled the coverage dispute before the court made its decision.