Litchfield Cavo Victory in Cyber Liability Coverage Case

Connecticut attorneys Melicent B. Thompson and Eric S. Lankton recently obtained a victory for an insurer client before the Connecticut Supreme Court in a cyber liability coverage dispute in which the plaintiffs sought CGL coverage for a data theft incident

On May 26, 2015, the Connecticut Supreme Court affirmed summary judgment for Litchfield Cavo LLP's client, the primary carrier, and the co-defendant umbrella carrier, on plaintiffs' breach of contract claim in which plaintiffs claimed that the insurer defendants improperly declined defense and indemnity coverage under CGL primary and follow form umbrella policies for pre-suit claims against them arising from loss of (presumed theft of) IBM data tapes containing IBM employees' personal data.  The plaintiffs sought coverage for over $6.1 million they paid to IBM as a result of pre-suit private settlement negotiations with IBM, which amount was for IBM's claimed costs incurred as a result of the incident in: (1) notifying the employees whose data was lost, (2) setting up call centers for them, and (3) monitoring their credit.

The main issues on appeal were: (1) whether the loss of the IBM tapes containing the private data constituted a "publication" for purposes of triggering personal injury coverage under the policies; and (2) whether the insurers were obligated to defend the insureds as to IBM's pre-suit demands and related settlement negotiations, notwithstanding that the policies limited the defense obligation to "suits," defined to include not only civil proceedings but also "other dispute resolution proceedings."

After the trial court rendered summary judgment for the insurer defendants, plaintiffs appealed to the Connecticut Appellate Court, which affirmed, and then successfully petitioned the Connecticut Supreme Court to review the case.  The Connecticut Supreme Court affirmed and adopted the Appellate Court's decision, in which the Appellate Court affirmed the trial court's holding that absent evidence of actual access to the lost data, there was no "publication," and further, that the pre-suit private settlement negotiations did not qualify as a "suit" because they were not the equivalent of an "other dispute resolution proceeding."

The industry has been watching this and similar cases closely as cyber liability currently is a front line issue in coverage litigation nationwide.  In this case, three amici curiae filed briefs with the Connecticut Supreme Court in support of plaintiffs' position.

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