In a June 1, 2016 decision, the Second Circuit Court of Appeals in National Fire Insurance Co. of Hartford et al. v. E. Mishan & Sons Inc. required CNA Financial Corporation to defend E. Mishan & Sons, Inc.(“Emson”) – best known for its “As Seen on TV” products –in two class actions alleging a conspiracy to trap customers into recurring credit card charges and that Emson sold private consumer information that it obtained through its product sales.
The class lawsuits included counts for fraud by omission, breach of contract, unjust enrichment, and violation of state and federal consumer protection laws. Emson’s general liability insurers refused to defend – a decision with which the federal district court agreed.
The Second Circuit reversed, rejecting the district court’s finding that each count was based on a “knowing violation” and concluding that Emson could be found liable without evidence that it knowingly violated consumers’ rights to privacy, thereby avoiding any policy exclusion.
The Second Circuit also held that the insurers could not evade their defense obligation based on the policy’s breach of contract exclusions, where less than all counts potentially came within the scope of that exclusion. The court noted the general rule that an insurer’s duty to defend is broader than its duty to indemnify, such that the insurer must defend even non-covered claims if other claims may be covered by the policy. Thus, because the unjust enrichment counts were likely covered by the policy, the insurer had to defend both class actions.
Emson is a reminder that even in instances of cyber liability, legacy general liability insurance still may be a valuable asset to policyholders. As cyber coverage products continue to evolve, scopes of coverage will vary from form to form, making it all-the-more important for policyholders to consider in any breach scenario whether any of the potential liability comes within the coverages traditionally afforded under general liability insurance. Policyholders, therefore, should consult with coverage counsel versed in both general liability and evolving cyber coverages when assessing any potential cyber-related claim or coverage.