Knowing Violation of the Rights of Another Exclusion Precludes Coverage for Consumer Protection Suits

The Southern District of New York held that two insurers had no duty to defend or indemnify their insured against lawsuits alleging deceptive aEURoedata passaEUR? practices. NataEUR(TM)l Fire Ins. Co. of Hartford v. E. Mishan & Sons, Inc., No. 13-cv-5774, 2014 U.S. Dist. LEXIS 130608 (S.D.N.Y. Sept. 16, 2014). The underlying actions (one in Illinois state court and the other in the Western District of Michigan) alleged similar claims against E. Mishan & Sons, Inc. (dba Emson, Inc.). Specifically, they alleged that Emson would gather consumer information and transfer it to other businesses, without the consumeraEUR(TM)s consent or knowledge. The other businesses would then contact the consumer and attempt to get him/her to enroll in free trials of subscription programs. The subscription programs allegedly trapped the consumers into recurring credit-card charges once the free trial period ended. The underlying lawsuits alleged mainly violations of state consumer protection statutes and various common law torts. Emson sought coverage under the aEURoepersonal and advertising injuryaEUR? parts of its CGL policies issued by National Fire Insurance Company of Hartford (NFI) and Valley Forge Insurance Company (Valley Forge). The insurers denied EmsonaEUR(TM)s tender and initiated the subject declaratory judgment action. The parties cross-moved for summary judgment. Regarding the insurersaEUR(TM) duty to defend, the court initially determined that EmsonaEUR(TM)s alleged conduct arguably allege aEURoepersonal and advertising injury.aEUR? However, the court found that the policiesaEUR(TM) knowing violations of the rights of another exclusion barred coverage. The district court reasoned that while New York law recognizes that duty to defend may still exist if there was not intent to injure, the underlying complaint alleged solely that EmsonaEUR(TM)s conduct was intentional and knowing. Some courts conclude that the knowing violation of the rights of another exclusion does not apply where the underlying tort does not inherently require proof of a specific intent to injure, even if the underlying complaint does not allege negligent or unintentional conduct. The district court here joined the growing chorus of courts that rely on the particular allegations in the underlying complaint, rather than what may be implied therefrom, in determining whether to apply the exclusion.

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