Adopting a broad definition of the term “publication,” which was not defined in the policies, a federal district judge in Ohio required ACE Property & Casualty Ins. Co. to immediately begin providing a defense to Convergys Corp. for class actions alleging that customer calls were illegally recorded.
Convergys provided customer service for Hyundai Motor Corp. A pair of lawsuits was filed – one against Convergys and a subsidiary, Encore Receivable Management, and a second against Hyundai – alleging that the call centers recorded telephone conversations between Hyundai customers and customer service representatives without obtaining customer consent. The recordings were then shared internally for training and quality control purposes, the plaintiffs said, violating their privacy rights.
ACE declined to provide a defense under an umbrella policy issued to Convergys, arguing that the claims did not involve any “publication,” as required for coverage as an advertising injury. Although the policy did not define the term, ACE contended that the ordinary meaning of “publication” required distribution beyond the insured. The underlying complaints claimed only that the recordings were shared among employees of Hyundai, Encore and Convergys.
The court found that “a transmittal or a further dissemination of secret information satisfies publication.” As such, “the initial dissemination of the conversation constitutes a publication at the very moment that the conversation is disseminated or transmitted to the recording device.” In any event, the court found that the underlying complaints alleged that the recorded calls were shared with other employees who were not participants in the original calls, which is arguably a public dissemination, triggering a duty to defend.
The court also rejected ACE’s argument that there was no coverage due to a prior publication exclusion because the policy of recording calls began before the ACE policies incepted. The court stated that each individual telephone call was published for the first time when it was recorded and shared. Because “the underlying complaints would allow proof of publication of new material during the policy period, the insurer may not avoid its duty to defend simply because the publications were part of a ‘continuing course of conduct.’”
The court also ruled that Convergys was entitled to a defense even though it was not named in one of the underlying complaints, because it was “expressly defending the matter” as a Doe defendant, with counsel actively defending the case.
Further, the court ruled that Convergys could select which insurer was responsible for the defense. Because there was a continuing course of conduct that “spans multiple policy periods, ‘the insured is entitled to secure coverage from a single policy of its choice that covers ‘all sums’ incurred as damages ‘during the policy period,’ subject to that policy’s limit of coverage.’”
The court also found that a criminal acts exclusion did not apply, even though the underlying claims asserted a violation of the California Penal Code. Under Ohio law, broad policy exclusions “must not be read to exclude coverage for merely negligent acts that have been criminalized.” Moreover, as to defense costs, because there had been no finding that the policyholders in fact had engaged in criminal conduct, the insured were entitled to a defense.
Accordingly, the court ruled that “ACE shall immediately undertake the defense of these potentially covered actions until such time as it is able to establish as a matter of law that there is no possibility of coverage, which showing ACE has not yet achieved in the present case.”
To read the decision in Encore Receivable Management Inc. et al. v. ACE Property & Casualty Insurance Co., click here.
Why it matters: The court adopted an expansive view of insurers’ defense obligations. It construed an undefined policy term in favor of coverage, held that a single triggered policy can be held responsible for the entire defense, and refused to apply exclusions based on alleged facts that had not been established.