Crate & Barrel has preliminarily resolved seven California class action lawsuits over the company’s alleged unlawful collection of zip codes during credit card transactions in violation of California law.
The resolutions were made as part of a preliminary settlement of an insurance coverage dispute in an Illinois federal court between Crate & Barrel and its insurer, Hartford Fire Insurance Co., whereby Crate & Barrel alleged Hartford had to indemnify it in the underlying zip code lawsuits under an insurance policy. Although the settlement was reached in the Illinois federal court, it resolves the underlying class actions pending in various California state and federal courts.
According to the underlying class actions, Crate & Barrel violated California’s Song-Beverly Credit Card Act, which prohibits retailers from collecting and recording personal identification information from consumers during a credit card transaction. The Act prohibits the collection of personal information during such transactions to prevent retailers from using the information for marketing purposes. Last year, the California Supreme Court in Pineda v. Williams-Sonoma Stores Inc. held that collecting and recording a consumer’s zip code alone triggered a violation because retailers could use zip codes for marketing purposes. Since the Pineda decision, there have been numerous class actions in California against retailers that have collected zip codes during credit card sales. Crate & Barrel has not been immune from such lawsuits.
While the underlying actions were filed in California courts, Hartford Fire Insurance Co. filed an action in Illinois federal court alleging that it did not have to provide coverage to Crate & Barrel in the California lawsuits under a general commercial liability policy issued by Hartford since the plaintiffs in the underlying lawsuits sought “civil penalties” (not “damages”), which are not covered by the Hartford policy. However, according to Crate & Barrel, consumer requests for relief are common law claims covered under the policy.
To avoid further litigation, Crate & Barrel and Hartford reached a settlement resolving their dispute and the underlying class actions. The terms of the settlement are not yet known to the public. The parties notified the court during a May 15, 2012, status hearing that they had reached a settlement. According to the court’s Minute Order, “Counsel for both parties reported that a global settlement in principle has been agreed upon, including the underlying class-action suits for which [Crate & Barrel] was seeking defense and indemnity.”
To read Hartford’s amended complaint, click here.
To read Crate & Barrel’s answer to the amended complaint, click here.
To read the court’s minute order, click here.
Why it matters: The settlement reached between Crate & Barrel and Hartford is potentially significant for retailers since it means they may have coverage under their general commercial liability policies in class actions alleging violations of California’s Song-Beverly Credit Card Act. Of course, the potential coverage also means that class counsel will more vigorously pursue these types of lawsuits since the insurance company provides another potential deep pocket other than the retailer.