In National Union Fire Insurance Company of Pittsburgh, PA v. Coinstar, Inc., No. C13-1014-JCC (W.D. Wash. Feb. 28, 2014), the United States District Court for the Western District of Washington applied Washington law and held that the “Violation of Statutes” exclusion in commercial general liability (CGL) policies precluded coverage for allegations that the policyholder disclosed customers’ personal information in violation of the Video Privacy Protection Act (VPPA). Accordingly, National Union did not have a duty to defend the policyholder in a putative class action alleging violations of the VPPA.
The case arose out of a putative class action filed against Redbox, which operates automated DVD-vending machines. Id. at 1. In order to rent a DVD, customers input their personal information into the digital record system on the machines and pay via credit card. Id. at 2. The complaint against Redbox alleged that, in violation of the VPPA, Redbox illegally maintained and used its customer’s “personally identifiable information” for marketing purposes and disclosed the information to third parties without their express permission. Id.
After receiving the complaint, Redbox tendered a claim to National Union, which had issued two CGL policies to Coinstar, Inc. (Redbox’s parent corporation). Id. at 1-2. Id. at 2. The CGL policies provided coverage for “personal injury and advertising injury” liability arising out of “oral or written publication, in any manner, of material that violates a person’s right of privacy.” Id. at 3. However, the policies excluded coverage “for any injury that arises from ‘any act that violates any statute . . . that addresses or applies to the sending, transmitting or communicating of any material or information, by any means whatsoever.’” Id. at 5.
National Union agreed to defend Redbox under a reservation of rights, and then filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Redbox. Id. at 2. National Union filed a motion for partial summary judgment and argued that it did not have a duty to defend Redbox because: (1) the allegations in the class action lawsuit did not implicate the coverage for “‘personal injury or advertising injury’ because the plaintiffs did not allege the occurrence of any ‘oral or written publication’ of material that violates a person’s privacy”, and (2) the “Violation of Statutes” exclusion precluded coverage for alleged violations of the VPPA. Id. at 3-4.
The court agreed that the “Violation of Statutes” exclusion precluded “any possible coverage for Redbox’s alleged VPPA violations.” Id. at 4. Specifically, the court found that “[t]he sole purpose of the VPPA is to protect consumers’ privacy by prohibiting the ‘sending, transmitting or communicating’ of their personal information ‘to any person’ except in specific, limited circumstances.” Id. at 5.
As the court explained, the VPPA “expressly prohibits a ‘video tape service provider’ from disclosing [to any person] ‘personally identifiable information’ about one of its consumers.” Id.(citations omitted). And “[b]ecause the [class action] plaintiffs have sued Redbox for violations of the VPPA, any potential liability for Redbox would arise only from ‘act[s] that violate a statute that addresses or applies to the sending, transmitting or communicating of . . . material or information.’” Id. Thus, according to the plain and unambiguous terms of the “Violation of Statutes” exclusion, “there [was] no basis for Redbox to obtain coverage under the policies at issue,” and National Union had no duty to defend Redbox. Id.
Redbox argued that the “Violation of Statutes” exclusion did not apply because prior versions of the exclusion contained language that limited its application to specific statutes, such as the Telephone Consumer Protection Act. Id. at 6. Rejecting the argument, the court explained that the exclusion’s language was clear and thus there was no need “to modify it [by looking at other versions of the exclusion] or create ambiguity where none exists.” Id. (citation and internal quotations omitted). In addition, the court stated that the result would have been the same under the prior versions because they also barred coverage for “any statute, ordinance, or regulation . . . that prohibits or limits the sending, transmitting, communicating or distribution of material or information.” Id.
Redbox also argued that National Union’s characterization of the exclusion would lead to “absurd results” by allowing the “unlimited extension of the exclusion to any statute where liability flows from the publication of information.” Id. at 7. The court found this argument was a red herring, and explained that Redbox was not arguing that the exclusion was ambiguous “so there [was] no need to compare competing constructions and determine hypothetical results.” Id. Indeed, Coinstar agreed to the plain and unambiguous coverage bar contained in the exclusion; therefore, “[t]he Court must enforce the exclusion as written unless is it against public policy,” and Redbox had not made such an argument. Id. at 7-8.
Because the court concluded that the “Violation of Statutes” exclusion precluded coverage, it did not address National Union’s argument that the allegations failed to trigger coverage for “personal injury or advertising injury.” Id. at 4 n.2.
Given the recent media focus on companies intentionally or unintentionally releasing customers’ private personal information, the Coinstar decision may provide guidance to other courts addressing whether similar “Violation of Statutes” exclusions preclude coverage for claims alleging statutory privacy violations. Moreover, the Coinstar decision confirms that a Washington court will not strain to find a defense obligation when a complaint’s allegations clearly fall within the scope of an unambiguous exclusion precluding coverage.