Beware the Trojan Horse: an agreement to defend based on reservations followed, in short order, by declaratory relief actions. The policyholder’s defender may be in disguise.
In an interesting Order coming from the United States District Court in Western District of Washington, case no C13-1014 (National Union et al v. Coinstar), National Union skillfully avoided a bad faith claim by timely agreeing to defend a series of troublesome class actions claiming breach of privacy, with the only caveat an insurance defense rate, and based on a reservation of rights. The offered rate was likely less than ½ the market rate insured’s counsel were charging to defend relatively complex and far reaching class actions filed across the country. The pretense of good faith was then followed by both a slow pay of defense fees, and a fast and efficient filing of a series of declaratory relief actions, which achieved the goal of Court opinions affirming no duty to defend these expensive class actions.
Several of the underlying lawsuits alleged invasion of privacy related to violation of the Video Rental Privacy Act (“VRPA”), enacted as a federal law and as a state law (barring disclosure of personally identifiable information about the customers) and the Song-Beverly Act (in connection with a California action barring requesting personal information when taking credit card payments, such as zip codes or email). All of the lawsuits were tendered to National Union for a defense under the personal and advertising provisions of the policy, which insured against “oral or written publication…that violates a person’s right of privacy.”
The policies each also contained a troublesome exclusion, virtually wiping out such...
