Duty to Defend and Indemnify Under Advertising Injury and Personal Injury Coverage–Texas Insurance Defense Lawyers

Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
2016 WL 102294
United States District Court,
S.D. Texas, Houston Division.
Evanston Insurance Company, Plaintiff,
v.
Gene by Gene, Ltd., Defendant.
Civil Action No. H–14–1842
|
Signed January 6, 2016

ORDER
DAVID HITTNER, United States District Judge
*1 Pending before the Court is Defendant Gene by Gene
Ltd.’s Motion for Summary Judgment (Document No. 21).
Having considered the motion, submissions, and applicable
law, the Court determines the motion should be granted.
I. BACKGROUND
This is an insurance coverage dispute. Defendant Gene
by Gene Ltd. (“Gene by Gene”) owns and operates
www.familytreedna.com, a genetic genealogy website. Users
of the website are offered the opportunity to test their
genetic information. Once users receive their DNA test
results they can analyze their genetic information to
learn more about their ancestry and connect with other
users whose results match in varying degrees. 1 Plaintiff
Evanston Insurance Company (“Evanston”) is Gene by
Gene’s insurer. Evanston issued four policies to Gene
by Gene: Policy Numbers SM–892198 and SM–898899
(“Professional Liability policies”), 2 and Policy Numbers
SM895587 and XS–800378 (“Excess Liability policies”) 3
(collectively, “Policies”). The Professional Liability policies
are duty to defend policies.
1 See Family Tree DNA, https://www.familytreedna.com
(last visited January 1, 2016).
2 Defendant Gene by Gene Ltd.’s Motion for
Summary Judgment, Document No. 21, Exhibit
A (Professional Liability Policy No. SM–892198)
[hereinafter Professional Liability Policy No. SM–
892198]; Defendant Gene by Gene Ltd.’s Motion
for Summary Judgment, Document No. 21, Exhibit
C (Professional Liability Policy No. SM–898899)
[hereinafter Professional Liability Policy No. SM–
898899].
3 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21, Exhibits B (Excess
Liability Policy No. SM–8955870) [hereinafter Excess
Liability Policy No. SM–8955870]; Defendant Gene by
Gene Ltd.’s Motion for Summary Judgment, Document
No. 21, Exhibit D (Excess Liability Policy No. XS–
800378) [hereinafter Excess Liability Policy No. XS–
800378].
On May 15, 2014, Gene by Gene was sued by named plaintiff
Michael Cole (“Cole”), on behalf of himself and others,
in Cause Number 1:14–cv–004–SLG, styled Michael Cole,
individually and on behalf of all others similarly situated
v. Gene by Gene, Ltd. a Texas limited liability company d/
b/a Family Tree DNA, in the United States District Court
for the District of Alaska (the “Underlying Lawsuit”). 4
Cole alleges Gene by Gene improperly published his DNA
test results on its website without his consent. Cole claims
this practice violated Alaska’s Genetic Privacy Act, Alaska
Statute § 18.13.010 (“Genetic Privacy Act”), which prohibits
the disclosure of a person’s DNA analysis without written and
informed consent. When Gene by Gene demanded coverage
and a defense of the Underlying Lawsuit from Evanston,
Evanston refused based on an exclusion in the Policies titled
“Electronic Data and Distribution of Material in Violation of
Statutes” (“Exclusion”).
4 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21, Exhibit E (Class Action
Complaint and Demand for Jury Trial) [hereinafter
Underlying Suit Complaint].
*2 On July 2, 2014, Evanston filed the present declaratory
judgment action, seeking a declaration from the Court that it
does not have to defend and/or indemnify Gene by Gene from
and against any claims or judgments in, or resulting from,
the Underlying Lawsuit. On August 29, 2014, Gene by Gene
answered and asserted its own counterclaims, requesting a
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2
declaration from the Court that Evanston is required to defend
and indemnify Gene by Gene and claiming that Evanston
breached its contract and violated Chapter 542 of the Texas
Insurance Code. On August 28, 2015, Gene by Gene moved
for summary judgment.
II. STANDARD OF REVIEW
Summary judgment is proper when “there is no genuine
dispute as to any material fact and the movant is entitled to
a judgment as a matter of law.” FED.R.CIV.P. 56(a). The
court must view the evidence in a light most favorable to the
nonmovant. Coleman v. Hous. Indep. Sch. Dist., 113 F.3d
528, 533 (5th Cir.1997). Initially, the movant bears the burden
of presenting the basis for the motion and the elements of the
causes of action upon which the nonmovant will be unable
to establish a genuine issue of material fact. Celotex Corp.
v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d
265 (1986). The burden then shifts to the nonmovant to come
forward with specific facts showing there is a genuine issue
for trial. See FED.R.CIV.P. 56(c); Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87, 106 S.Ct.
1348, 89 L.Ed.2d 538 (1986). “A dispute about a material
fact is ‘genuine’ if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Bodenheimer
v. PPG Indus., Inc., 5 F.3d 955, 956 (5th Cir.1993) (citation
omitted).
But the nonmoving party’s bare allegations, standing alone,
are insufficient to create a material issue of fact and defeat a
motion for summary judgment. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d
202 (1986). Moreover, conclusory allegations unsupported
by specific facts will not prevent an award of summary
judgment; the plaintiff cannot rest on his allegations to get
to a jury without any significant probative evidence tending
to support the complaint. Nat’l Ass’n of Gov’t Emps. v.
City Pub. Serv. Bd. of San Antonio, 40 F.3d 698, 713 (5th
Cir.1994). If a reasonable jury could not return a verdict for
the nonmoving party, then summary judgment is appropriate.
Liberty Lobby, Inc., 477 U.S. at 248, 106 S.Ct. 2505.
The nonmovant’s burden cannot be satisfied by conclusory
allegations, unsubstantiated assertions, or “only a scintilla of
evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d
337, 343 (5th Cir.2007) (quoting Little v. Liquid Air Corp.,
37 F.3d 1069, 1075 (5th Cir.1994)). Furthermore, it is not the
function of the court to search the record on the nonmovant’s
behalf for evidence which may raise a fact issue. Topalian v.
Ehrman, 954 F.2d 1125, 1137 n. 30 (5th Cir.1992). Therefore,
“[a]lthough we consider the evidence and all reasonable
inferences to be drawn therefrom in the light most favorable
to the nonmovant, the nonmoving party may not rest on the
mere allegations or denials of its pleadings, but must respond
by setting forth specific facts indicating a genuine issue for
trial.” Goodson v. City of Corpus Christi, 202 F.3d 730, 735
(5th Cir.2000) (quoting Rushing v. Kansas City S. R.R. Co.,
185 F.3d 496, 505 (5th Cir.1999)).
III. LAW & ANALYSIS
Gene by Gene contends the claim in the Underlying
Lawsuit falls under its Advertising Injury and Personal Injury
coverage because it is for an injury that arises out of the
written publication of material that violates a person’s right of
privacy. Evanston contends the claim is excluded from that
coverage because it is brought pursuant to a statute that falls
under Section C of the Exclusion, which precludes coverage
for “any other statute, law, rule, ordinance, or regulation that
prohibits or limits the sending, transmitting, communication
or distribution of information or other material.” 5
5 Professional Liability Policy No. SM–892198, supra
note 2 at 14.
*3 The parties agree Texas law governs the rules of
insurance policy interpretation in this case. Test Masters
Educ. Servs., Inc. v. State Farm Lloyds, 791 F.3d 561, 564
(5th Cir.2015). To determine whether an insurer has a duty
to defend an insured from an underlying lawsuit, Texas
courts apply the “eight comers rule.” Id. “ ‘Under that rule,
courts look to the facts alleged within the four comers of the
[underlying] pleadings, measure them against the language
within the four comers of the insurance policy, and determine
if the facts alleged present a matter that could potentially
be covered by the insurance policy.’ ” Id. (quoting Ewing
Constr. Co. v. Amerisure Ins. Co., Inc., 420 S.W.3d 30, 33
(Tex.2014)). Courts must focus on the factual allegations
in the underlying pleadings rather than any asserted legal
theories or conclusions. Id. (citing Ewing, 420 S.W.3d at
33). Courts must “resolve ‘all doubts regarding the duty to
defend … in the insured’s favor.’ ” Id. (quoting Ewing, 420
S.W.3d at 33). If the underlying complaint “ ‘potentially
includes a covered claim, the insurer must defend the entire
suit.’ ” Id. (emphasis in original) (quoting Zurich Am. Ins. Co.
v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex.2008)). The insured
has an initial burden to establish coverage under the terms
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 3
of the policy. Gilbert Texas Const., L.P. v. Underwriters
at Lloyd’s London, 327 S.W.3d 118, 124 (Tex.2010). Once
coverage is established, the insurer has the burden to show an
exclusion applies. Id.
“If only one party’s construction [of an insurance policy’s
language] is reasonable, the policy is unambiguous.” RSUI
Indemnity Co. v. The Lynd Co., 466 S.W.3d 113, 118
(Tex.2015). However, if both parties have reasonable
interpretations of the language, the policy is ambiguous.
Id. In that case, courts “must resolve the uncertainty by
adopting the construction that most favors the insured …
even if the construction urged by the insurer appears to be
more reasonable or a more accurate reflection of the parties’
intent.” Id. (emphasis added). A construction that renders
any portion of a policy illusory or “meaningless, useless, or
inexplicable” cannot be adopted by the court. Evanston Ins.
Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660, 669
n. 27 (Tex.2008).
A. Coverage under the Policies
According to the complaint in the Underlying Lawsuit,
the sole claim asserted in the case is pursuant to Alaska’s
Genetic Privacy Act. That claim is based on the factual
allegations that Gene by Gene “made the results of [the
customers’] DNA analyses publicly available on its own
websites. [Gene by Gene] also disclosed Plaintiffs sensitive
information to third-party ancestry company RootsWeb.” 6
In addition, Gene by Gene “never obtained Plaintiff’s or the
Class’s informed written consent required by [the Genetic
Privacy Act] to make the results of their DNA analyses public
or to disclose sensitive information to third-parties, including
ancestry company RootsWeb … By making the results of their
DNA analyses publicly available and otherwise disclosing
the same to any third-parties as described herein, [Gene by
Gene] violated Plaintiff’s and the Class’s statutorily-protected
rights to privacy in their genetic information as set forth in
the Genetic Privacy Act … as well as their common law rights
to privacy.” 7
6 Underlying Suit Complaint, supra note 4 at 13.
7 Underlying Suit Complaint, supra note 4 at 13–14.
The Professional Liability policies provide coverage for
“Personal Injury and Advertising Injury Liability.” 8 Under
the Professional Liability policies, “Advertising injury”
means “injury … arising out of oral or written publication
of material that libels or slanders a person or organization
or a person’s or organization’s products, goods or operations
or other defamatory or disparaging material, occurring in the
course of the Named Insured’s Advertisement.” 9 “Personal
injury” is defined to include “oral or written publication
of material that violates a person’s right of privacy.” 10
Comparing the factual allegations within the four corners of
the Underlying Lawsuit and the four comers of the Policies,
the claim in the Underlying Suit falls within the definition of
Personal Injury because it includes the publication of material
—the DNA analysis—that allegedly violates a person’s right
to privacy.
8 Professional Liability Policy No. SM–892198, supra
note 2 at 2; Professional Liability Policy No. SM–
898899, supra note 2 at 2.
9 Professional Liability Policy No. SM–892198, supra
note 2 at 27; Professional Liability Policy No. SM–
898899, supra note 2 at 45.
10 Professional Liability Policy No. SM–892198, supra
note 2 at 30; Professional Liability Policy No. SM–
898899, supra note 2 at 45.
*4 The Professional Liability policies define “damages”
as “the monetary portion of any judgment, award or
settlement.” 11 Damages do not include “punitive or
exemplary damages … taxes, criminal or civil fines, or
attorney’s fees or penalties imposed by law … sanctions …
or the return of or restitution of fees, profits or charges for
services rendered.” 12 Fines, penalties, and taxes are “limited
to payments made to the government” and do not include
statutory damages that make up the monetary portion of a
judgment. Flagship Credit Corp. v. Indian Harbor Ins. Co.,
481 Fed.Appx. 907, 912 (5th Cir.2012). The relief requested
in the underlying lawsuit includes “an award of actual and
statutory damages of $5,000.” 13 This request falls under the
Policies’ definition of damages. Accordingly, the Court finds
Gene by Gene, as the insured, has met its burden to establish
coverage under the terms of the policy.
11 Professional Liability Policy No. SM–892198, supra
note 2 at 19; Professional Liability Policy No. SM–
898899, supra note 2 at 15–16.
12 Professional Liability Policy No. SM–892198, supra
note 2 at 19.
13 Underlying Suit Complaint, supra note 4 at 15.
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4
B. Applicability of Exclusion
The Exclusion at issue in this case, included in all four
policies, precludes coverage for a claim based upon or arising
out of any violation of:
(a) the Telephone Consumer Protection Act of 1991
(TCPA) and amendments thereto or any similar or
related federal or state statute, law, rule, ordinance or
regulation;
(b) the CAN–SPAM Act of 2003 and amendments thereto
or any similar or related federal or state statute, law, rule,
ordinance, or regulation; or
(c) any other statute, law, rule, ordinance, or regulation
that prohibits or limits the sending, transmitting,
communication or distribution of information or other
material. 14
Evanston contends the claim in the Underlying Lawsuit falls
under the plain language of Section C of the Exclusion
because it is brought pursuant to a statute—the Genetic
Privacy Act—that prohibits the transmitting, communication
or distribution of information or other material—namely,
the public disclosure of a person’s DNA analysis on Gene
by Gene’s website and to other third-parties like RootsWeb.
Gene by Gene contends this construction of Section C is too
broad and is unreasonable in light the rest of the Exclusion
and the entire policy.
14 Professional Liability Policy No. SM–892198, supra
note 2 at 14; Excess Liability Policy No. SM–8955870,
supra note 3 at 5; Professional Liability Policy No. SM–
898899, supra note 2 at 7; Excess Liability Policy No.
XS–800378, supra note 3 at 12.
Specifically, Gene by Gene contends the canon of
construction of ejusdem generis should apply to Section
C. According to that canon, “Where general words follow
specific words in a statutory enumeration, the general words
are [usually] construed to embrace only objects similar
in nature to those objects enumerated by the preceding
specific words.” Yates v. United States, –––U.S. ––––, 135
S.Ct. 1074, 1086, 191 L.Ed.2d 64 (2015) (alteration in
original). The Telephone Consumer Protection Act (“TCPA”)
referenced in Section A of the Exclusion generally regulates
the use of unsolicited telephone calls and fax transmissions
to consumers. 15 Similarly, the CAN–SPAM Act of 2003
(“CAN–SPAM”) referenced in Section B of the Exclusion
generally regulates the use of unsolicited, fraudulent, abusive,
and deceptive emails to consumers. 16 Accordingly, Gene by
Gene contends Section C also refers generally to other forms
of unsolicited communication to consumers “that intrude[ ]
into one’s seclusion.” 17
15 See 47 U.S.C. § 227; Mims v. Arrow Fin. Servs., LLC,
–––U.S. ––––, 132 S.Ct. 740, 745, 181 L.Ed.2d 881
(2012).
16 See 15 U.S.C. §§ 7703, 7704; White Buffalo Ventures,
LLC v. Univ. of Tex. at Austin, 420 F.3d 366, 371 (5th
Cir.2005).
17 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21 at 10.
*5 In response, Evanston contends Gene by Gene’s reliance
on ejusdem generis is misplaced because the “intent”
of each statute is different. 18 For example, the TCPA
regulates “unsolicited, automated” telephone calls and fax
transmissions, while the CAN–SPAM Act regulates “false or
misleading unsolicited e-mail.” 19 However, while the two
statutes regulate different forms of communication, the intent
—to protect consumers from unsolicited communication that
invades their seclusion—is the same. In addition, Gene by
Gene’s construction does not render the “or any similar
or related” portions of Sections A and B redundant. It is
reasonable to construe that language as meaning any similar
or related statutes or laws that govern communication over
the phone or fax machine (Section A) or email (Section B),
while Section C covers other, similarly unsolicited forms of
communication that may be regulated by statute, law, rule,
ordinance, or regulation. Accordingly, the Court finds Gene
by Gene’s construction of the Exclusion reasonable. 20
18 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof Document No. 25 at
13.
19 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof, Document No. 25 at
13.
20 In its motion for summary judgment, Gene by Gene
contends Texas Department of Insurance (“TDI”) orders
support its construction of the Exclusion, citing to,
inter alia, approved forms for exclusions concerning the
TCPA and CAN–SPAM Act. Defendant Gene by Gene
Ltd.’s Motion for Summary Judgment, Document No. 21
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5
at 12–19. In response, Evanston contends the evidence
Gene by Gene cites are not actually final “orders” of the
TDI, but are “correspondence and certificates from the
TDI which show certain endorsements were filed with
that administrative agency for the purpose of obtaining
use approval.” Evanston Insurance Company’s Response
to Gene by Gene, Ltd.’s Motion for Summary Judgment
and Memorandum in Support Thereof Document No. 25
at 14. Because the Court is able to determine that the
Exclusion is at the very least ambiguous and that Gene
by Gene’s construction of it is reasonable without relying
on the TDI evidence, the Court need not address whether
the TDI documents are in fact final “orders.”
In addition, Gene by Gene contends Evanston’s construction
is unreasonable because it would render illusory the
Advertising Injury coverage, which includes claims arising
out of the written publication of material that libels or slanders
a person, and the Personal Injury coverage, which includes
claims arising out of the written publication of material that
violates a person’s right to privacy. In response, Evanston
contends
the policies would still apply to the
many more traditional defamation and
advertising injuries so long as there
is [no] statute, law, rule, ordinance
or regulation that applied to the
type of information being published.
Thus, common law claims for [libel],
slander, invasion of privacy and other
forms of defamation would still be
covered under the advertising injury
provisions of the policies as long as
there is no statute prohibiting the act
complained about.” 21
However, as Gene by Gene points out, common law claims,
while not codified in a statute, are still based on “law” and
thus may still be excluded under Evanston’s construction. 22
In addition, Gene by Gene points to states such as Texas
where the “traditional defamation” injuries, like libel and
false disparagement of goods, services, or business are in fact
regulated by statute. 23 In that case, Evanston’s construction
would render a policy that explicitly includes coverage
for libel illusory. However, even if the Court also found
Evanston’s construction reasonable, the Exclusion would be
ambiguous and the Court would still be required to apply
the alternative reasonable construction propagated by the
insured, Gene by Gene.
21 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof, Document No. 25 at
15 (emphasis added).
22 See COMMON LAW, Black’s Law Dictionary (10th
ed.2014) (defining “common law” as “the body of law
derived from judicial decisions, rather than from statutes
or constitutions”).
23 See TEX. CIV. PRAC. & REM. CODE § 73.001, et
seq (elements of libel); TEX. BUS. & COM. CODE §
17.46(b)(8) (Texas Deceptive Trade Practices Act).
*6 Applying the claim in the Underlying Suit to the
Exclusion as construed by Gene by Gene, the Court finds
the claim does not fall under the Exclusion. The Genetic
Privacy Act does not concern unsolicited communication to
consumers, but instead regulates the disclosure of a person’s
DNA analysis. The facts upon which the claim is based
deal solely with Gene by Gene’s alleged improper disclosure
of DNA test results on its public website and to thirdparties.
The facts alleged in the complaint do not address
the type of unsolicited seclusion invasion contemplated by
the Exclusion. Accordingly, the Underlying Lawsuit is not
excluded from Gene by Gene’s policy coverage. Because
Gene by Gene has met its burden to establish that the claim
in the Underlying Lawsuit is covered by the Policies and
Evanston did not establish that the claim is excluded, the
Court finds Evanston has a duty to defend and indemnify
Gene by Gene in the Underlying Lawsuit.
C. Counterclaims
Gene by Gene alleges Evanston breached its contract when
it refused to defend and indemnify Gene by Gene pursuant
to the Policies. The Court has already determined Evanston
had a duty to defend and indemnify Gene by Gene under the
Policies. 24 Therefore, Evanston breached its contract when it
refused coverage. Accordingly, summary judgment is granted
as to Gene by Gene’s breach of contract counterclaim.
24 See also Professional Liability Policy No. SM–892198,
supra note 2 at 1; Professional Liability Policy No. SM–
898899, supra note 2 at 1.
Gene by Gene alleges Evanston violated Chapter 542 of the
Texas Insurance Code when it delayed in paying Gene by
Gene’s defense costs. That chapter “may be applied when an
insurer wrongfully refuses to promptly pay a defense benefit
owed to the insured.” Lamar Homes, Inc. v. Mid–Continent
Cas. Co., 242 S.W.3d 1, 20 (Tex.2007). See also Trammell
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6
Crow Residential Co. v. Va. Sur. Co., Inc., 643 F.Supp.2d
844, 859 (N.D.Tex.2008) (Fitzwater, J.) (holding an insurer
is liable under the statute when “it wrongfully rejects its
defense obligation.”). An insurer is liable under the statute if
it wrongfully delays payment for more than 60 days. TEX.
INS. CODE § 542.058. The Court has already determined
Evanston had a duty to defend under the Policies. 25 Evanston
delayed more than 60 days to pay Gene by Gene’s defense.
Accordingly, Evanston is liable under Chapter 542 of the
Texas Insurance Code and thus summary judgment is granted
as to Gene by Gene’s counterclaim.
25 See also Professional Liability Policy No. SM–892198,
supra note 2 at 1; Professional Liability Policy No. SM–
898899, supra note 2 at 1.
IV. CONCLUSION
Based on the foregoing, the Court hereby
ORDERS that Defendant Gene by Gene Ltd.’s Motion for
Summary Judgment (Document No. 21) is GRANTED. The
Court further
ORDERS that Defendant Gene by Gene must file its brief
and documentation regarding the calculation of its damages,
attorneys’ fees, and prejudgment interest by January 27,
2016. The Court further
ORDERS that Plaintiff Evanston must submit its response to
Defendant Gene by Gene’s brief and calculation by February
17, 2016.
All Citations
— F.Supp.3d —-, 2016 WL 102294

 

 

 

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