United States: Ninth Circuit Rules That Statutory Violation Exclusion Bars Coverage For All Underlying Claims

Applying an exclusion for statutory violations, the Ninth Circuit barred coverage for all underlying claims, including non-statutory claims. Big 5 Sporting Goods Corp. v. Zurich Am. Ins. Co., 2015 WL 8057228 (9th Cir. Dec. 7. 2015) (unpublished decision). This follows a growing trend reported on in our April and May 2014 and January 2015 Alerts.

Several class action suits were filed against Big 5 Sporting Goods, alleging the violation of plaintiffs' privacy rights by obtaining and publishing consumers' ZIP codes during credit card transactions. The complaints alleged violations of the Song-Beverly Act and the common law right to privacy. A California federal district court ruled that the insurers had no duty to defend or indemnify the suits based on the policies' Statutory Violation Exclusion, which barred coverage for injury "arising directly or indirectly out of any action or omission that violates or is alleged to violate any statute ... ." The Ninth Circuit affirmed.

The court rejected Big 5's argument that insurers were obligated to defend because the suits contained common law and California constitutional right to privacy claims, separate and apart from the Song-Beverly Act violations. The court explained that "in garden variety ZIP code cases like these, such extra Song-Beverly Act privacy claims simply do not exist." The court further dismissed Big 5's attempt to obtain coverage by framing some of the underlying claims as based in negligence. The court stated, "a rose by any other name is still a rose, so a ZIP Code case by under any other label remains a ZIP Code case." A Wisconsin appellate court employed the same reasoning and ruled that a similarly-worded TCPA exclusion barred coverage for both statutory and common law conversion claims. See State Farm Fire & Cas. Co. v. Easy PC Solutions, LLC, 2015 WL 8215533 (Wis. Ct. App. Dec. 9, 2015).

Other courts have denied coverage for ZIP code-related privacy claims on the basis that they do not allege a covered advertising injury. See, e.g., OneBeacon Am. Ins. Co. v. Urban Outfitters, Inc., 2015 WL 5333845 (3d Cir. Sept. 15, 2015) (discussed in our October 2015 Alert).

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