November 29, 2018 Practice Points

Duty to Defend Determined by What Might Be Alleged in the Future Not by Current Pleadings

A court held that an insurer had breached its duty to defend a lawsuit that neither alleged facts bringing the claims within policy coverage, nor alleged facts from which coverage could be reasonably inferred, finding a defense obligation on the grounds that the lawsuit could be amended to allege facts that would implicate coverage

by Laura Foggan and Stephanie Corrao

On October 12, 2018, in an expansive ruling on the duty to defend under California law, Judge Edward J. Davila of the U.S. District Court for the Northern District of California, held that an insurer had breached its duty to defend a lawsuit that neither alleged facts bringing the claims within policy coverage, nor alleged facts from which coverage could be reasonably inferred. Rather, the court found a defense obligation on the grounds that the lawsuit could be amended to allege facts that would implicate coverage.  

Yahoo! Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, Case No. 5:17-cv-00489-EJD (N.D. Cal. Oct. 12, 2018), arose from three separate class action lawsuits against Yahoo! Inc. alleging that the company had violated the California Invasion of Privacy Act (CIPA), a state penal statute. The actions all involved allegations that, without consent, Yahoo allegedly scanned emails sent from non-Yahoo accounts to Yahoo subscribers. In two of the litigations, the Sutton and Penkava Lawsuits, the claimants alleged that Yahoo intercepted emails sent by non-Yahoo subscribers as a matter of common practice before their intended delivery to Yahoo subscribers. The Penkava lawsuit further alleged that the insured “profited in California” from the alleged CIPA violations. Neither lawsuit specifically alleged that the insured disclosed the claimants’ private information to a third party or otherwise “published” the private information. In the third lawsuit, In re Yahoo Mail Litigation, a consolidated class action, the claimants again alleged CIPA violations, as well as violations of the California Constitution, and two federal statutes. In that litigation, the claimants alleged that Yahoo’s scanning activities were for the “purpose of deriving profits from, among other things, the marketing of their personal data and the sales of targeted advertising and content.”  

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