Target Corp. v. ACE Am. Ins. Co.

517 F.Supp.3d 798

TARGET CORPORATION, Plaintiff,

v.ACE AMERICAN INSURANCE COMPANY et al., Defendants.

Case No. 19-cv-2916 (WMW/DTS)

United States District Court, D. Minnesota.

Signed February 8, 2021

David B. Goodwin, Pro Hac Vice, Gretchen Ann Hoff Varner, Pro Hac Vice, Covington & Burling LLP, San Francisco, CA, John B. Lunseth, II, Mira Vats-Fournier, Taft Stettinius & Hollister LLP, Minneapolis, MN, for Plaintiff.

Charles E. Spevacek, William M. Hart, Meagher & Geer, PLLP, Minneapolis, MN, for Defendants.

ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT

Wilhelmina M. Wright, United States District Judge

This matter is before the Court on the parties’ cross-motions for summary judgment. (Dkts. 27, 34.) For the reasons set forth below, Plaintiff's motion for partial summary judgment is denied and Defendants’ motion for summary judgment is granted.

BACKGROUND

In December 2013, Plaintiff Target Corporation (Target) discovered that an unauthorized individual had breached Target's computer networks and stolen the payment card data and personal contact information of Target's customers (Data Breach). Following the Data Breach, multiple banks that had issued the compromised payment cards—the physical plastic credit and debit cards—cancelled and reissued the payment cards to customers, incurring costs associated with these actions. The banks sued Target for these costs (Payment Card Claims). Target subsequently resolved the Payment Card Claims through confidential settlements.

The instant dispute pertains to whether Defendants ACE American Insurance Company and ACE Property & Casualty Insurance Co. (collectively, ACE), as Target's insurer, must indemnify Target for part or all of Target's settlement liability related to the Payment Card Claims. ACE issued two commercial general liability (CGL) policies (collectively, the Policies) to Target.¹ As relevant to this dispute, the Policies provide insurance coverage to Target "for the ‘ultimate net loss’ ... because of ‘bodily injury’ or ‘property damage.’ " The Policies define "property damage" as the "[l]oss of use of tangible property that is not physically injured" and provide that "[a]ll such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it." On January 14, 2014, Target notified ACE of Target's potential liability for costs associated with the Data Breach. ACE denied coverage under the Policies.

On November 15, 2019, Target commenced this breach-of-contract action against ACE seeking a declaratory judgment that Target's liability for the Payment Card Claims is covered under the Policies. Target also seeks judgment against ACE for the settlement payments relating to the Payment Card Claims. The parties now cross-move for summary judgment.

ANALYSIS

I. Summary Judgment Standard

Summary judgment is proper when the record before the district court establishes that there is "no genuine dispute as to any material fact" and the moving party is "entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A genuine dispute as to a material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Courts must construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of that party. See Young v. United Parcel Serv., Inc. , 575 U.S. 206, 135 S. Ct. 1338, 1347, 191 L.Ed.2d 279 (2015). A nonmoving party asserting that a fact is genuinely disputed must cite "particular parts of materials in the record" that support the assertion. Fed. R. Civ. P. 56(c)(1)(A). The nonmoving party may not "rest on mere allegations or denials but must demonstrate on the record the existence of specific facts [that] create a genuine issue for trial." Krenik v. County of Le Sueur , 47 F.3d 953, 957 (8th Cir. 1995) (internal quotation marks omitted).

The parties agree that the material facts of this case are not in dispute and, therefore, summary judgment is proper.

II. Insurance Policy Interpretation Under Minnesota Law

"Interpretation of an insurance policy is a matter of state law," and here the parties agree that Minnesota law applies. Progressive N. Ins. Co. v. McDonough , 608 F.3d 388, 390 (8th Cir. 2010) (observing that Minnesota law applies because "Minnesota is the forum state and neither party has raised a choice-of-law claim"). Under Minnesota law, interpretation of an insurance policy is subject to the general principle of contract interpretation that unambiguous language is given its usual and accepted meaning. Id. at 390–91 (citing Lobeck v. State Farm Mut. Auto. Ins. Co. , 582 N.W.2d 246, 249 (Minn. 1998) ). By contrast, when the language of an insurance policy is ambiguous, such language "will be construed against the insurance company, as the drafter of the contract." Progressive Specialty Ins. Co. v. Widness , 635 N.W.2d 516, 518 (Minn. 2001). Language of an insurance policy is ambiguous "only if it is reasonably subject to more than one interpretation." Hammer v. Invs. Life Ins. Co. of N. Am. , 511 N.W.2d 6, 8 (Minn. 1994).

Insurance coverage disputes ordinarily may be resolved on summary judgment based on a court's interpretation of the disputed insurance policy provisions. See, e.g. , Secura Ins. v. Horizon Plumbing, Inc. , 670 F.3d 857, 860–61 (8th Cir. 2012). The burden of proving allocation of a settlement between covered and uncovered claims rests with the insured party. UnitedHealth Grp. Inc. v. Columbia Cas. Co. , 47 F. Supp. 3d 863, 873 (D. Minn. 2014) ; Eng'g & Constr. Innovations, Inc. v. L.H. Bolduc Co. , 825 N.W.2d 695, 705 (Minn. 2013).

III. Coverage

"Under Minnesota law, an insurer's duty to defend is distinct from and broader than its duty to indemnify the insured." Eyeblaster, Inc. v. Fed. Ins. Co. , 613 F.3d 797, 801 (8th Cir. 2010) (citing SCSC Corp. v. Allied Mut. Ins. Co. , 536 N.W.2d 305, 316 (Minn. 1995), overruled on other grounds by Bahr v. Boise Cascade Corp. , 766 N.W.2d 910 (Minn. 2009) ). The parties agree that this case presents the issue of whether ACE has a duty to indemnify. The duty to defend is not at issue. Instead, the parties dispute whether Target has met its burden of demonstrating claim coverage under the Policies.

To determine whether the insured has met its burden of demonstrating claim coverage, the reviewing court examines the language of the particular policy and the claim or claims actually proven by the third-party claimant in the underlying liability action. Remodeling Dimensions, Inc. v. Integrity Mut. Ins. Co. , 819 N.W.2d 602, 617 (Minn. 2012).² The insurer's scope of indemnity is defined by the terms of the insurance policy. Goodyear Tire & Rubber Co. v. Dynamic Air, Inc. , 702 N.W.2d 237, 244 (Minn. 2005). "Specifically, an insurer has a duty to indemnify when its insured is found liable for a third-party claim within the terms of the liability insurance policy, but an insurer has no duty to indemnify when its insured is found liable for a third-party claim that is outside the policy's scope." Remodeling Dimensions , 819 N.W.2d at 616. Therefore, whether ACE must indemnify Target depends on the scope of the Policies.

To meet its burden of demonstrating claim coverage under the Policies, Target must demonstrate that the identified losses arose out of an "occurrence" and resulted in Target's legal obligation to pay damages because of the "loss of use" of "tangible property that is not physically injured." These requirements of the Policies, and the parties’ respective arguments as to each, are analyzed in turn.

A. "Occurrence"

In order to obtain coverage under the Policies, Target first must demonstrate that there was an "occurrence." The parties dispute whether the Data Breach constitutes an "occurrence." The Policies define an "occurrence" as an "accident, including continuous or repeated exposure to substantially the same general harmful conditions." Because the Policies do not define "accident," the Court may rely on case law definitions. See Am. Fam. Ins. Co. v. Walser , 628 N.W.2d 605, 609–10 (Minn. 2001) (analyzing case law definitions of "accident" in the absence of a contractual definition).

The Court need not resort to such definitions in this case, however. As addressed below, Target has not satisfied its burden to demonstrate that the Data Breach resulted in Target's legal obligation to pay damages because of the "loss of use" of "tangible property that is not physically injured." Thus, assuming without deciding that the Data Breach constitutes an "occurrence" under the Policies, Target cannot prevail.

B. "Loss of Use"

The second requirement that Target must satisfy to demonstrate a claim for coverage under the Policies is that the damages incurred were because of "loss of use." As to this requirement, the parties advance numerous arguments, each of which is analyzed in turn.

Target argues that the United States Court of Appeals for the Eighth Circuit's decision in Eyeblaster "confirms that coverage is available for Target's loss." Eyeblaster involved an insurance company's duty to defend, which under Minnesota law "is distinct from and broader than [an insurer's] duty to indemnify the insured." Eyeblaster , 613 F.3d at 801. To avoid its duty to defend, an insurer must show that "each claim asserted in the lawsuit clearly falls outside the policy." Id. at 804 (quoting Murray v. Greenwich Ins. Co. , 533 F.3d 644, 648 (8th Cir. 2008) ). This is a "heavy burden." Id. (quoting Murray , 533 F.3d at 649 ).

Here, Target's reliance on Eyeblaster is misplaced. Eyeblaster involved the "distinct" and "broader" duty to defend, id. , not the duty to indemnify, which is at issue here. Despite this distinction, Target argues that "the Eighth Circuit could not have reached its decision in Eyeblaster without holding that the plaintiff in that case...