In Nationwide Mutual Insurance Company v. Gum Tree Property Management, L.L.C., ___ F. App’x ___, 2015 WL 170244 (5th Cir. Jan. 14, 2015), the United States Court of Appeals for the Fifth Circuit, applying Mississippi law, affirmed the district court’s summary judgment order holding that a general commercial liability insurer had no duty to defend or indemnify its policyholder in a lawsuit seeking damages associated with the policyholder’s alleged solicitation of confidential information and customers from a business competitor.

The Gum Tree Property litigation arose out of a dispute between Lexington Relocation Services, LLC (Lexington), a corporate housing company, and a group of parties associated with Gum Tree Property Management, LLC (collectively, Gum Tree).  Gum Tree is a property-management company that manages real estate in the Tupelo, Mississippi area.  In a lawsuit filed in Kentucky state court, Lexington alleged that its former employee left her position and went to work for Gum Tree.  Lexington contended that the employee violated her employment agreement with Lexington by disclosing Lexington’s confidential company information which Gum Tree then used to solicit current and prospective customers.  Lexington brought claims for, among other things, tortious interference with contractual relations, tortious interference with business relations, and misappropriation of trade secrets.

Nationwide Mutual Insurance Company (Nationwide) issued nine different general commercial liability and umbrella insurance policies to Gum Tree.  Seven of the policies provided coverage for claims of “personal and advertising injury,” defined to include claims for “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services” or “oral or written publication, in any manner, of material that violates a person’s right of privacy.”  The other two policies provided coverage for claims of “personal injury,” defined to include claims of “injury, other than advertising injury, arising out of one or more of the following offenses committed during the policy period in the conduct of your business: . . . (2) The publication or utterance of libel or slander or of other defamatory or disparaging material, or [a] publication or utterance in violation of an individual’s right of privacy.”

Nationwide formally denied coverage on July 12 and 17, 2012, and then brought suit in the United States District Court for the Northern District of Mississippi, seeking a declaration that it had no duty to defend or indemnify Gum Tree.  The district court agreed, and granted summary judgment in Nationwide’s favor.

The Fifth Circuit affirmed.  The court agreed with the district court that Lexington’s claims did not qualify as either claims for “disparagement” or “advertising injury” under the policies.  The court further agreed that Lexington was not a “person” who could allege a violation of privacy covered under the policies.  Gum Tree argued on appeal that, since the policies did not define “person,” the term was ambiguous and therefore must be construed in the policyholder’s favor.  The Fifth Circuit disagreed, noting that Kentucky, where Lexington brought suit, does not grant to businesses a cause of action for invasion of privacy.  The court further observed that the policies did not appear to anticipate the provision of coverage for privacy claims brought by businesses because the policies omitted the term “organizations” in their provisions addressing privacy, despite using it elsewhere.

Gum Tree Property serves as an example of how courts may decline to construe undefined policy language in favor of the policyholder if surrounding context gives the language clear meaning.  Here, both the structure of the policies and applicable state law indicated that claims for violations of “a person’s right to privacy” did not include claims brought by businesses.  As the Fifth Circuit’s decision shows, neither policyholders nor insurers should automatically assume that simply because a policy term is undefined, courts will interpret it broadly.