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Recent California Decision Upholds Data Breach Coverage

Posted on November 27, 2013 by Dissent

Understanding what your insurance will cover when it comes to a data breach and what it won’t can save you a lot of grief down the road. Roberta D. Anderson of K&L Gates analyzes a recent case where the court concluded that a breached entity was covered under the terms of their policy’s language, but as we’ve seen elsewhere, that’s not always the case:

The U.S. District Court for the Central District of California recently upheld coverage under a commercial general liability policy for a hospital data breach that compromised the confidential medical records of nearly 20,000 patients.

In that case, Hartford Casualty Insurance Company v. Corcino & Associates et al.,[1] the plaintiffs in two underlying class actions sought, among other relief, statutory damages of $1,000 per person under the California Confidentiality of Medical Information Act (“CMIA”)[2] and statutory damages of up to $10,000 per person under the California Lanterman Petris Short (“LPS”) Act.[3]

The hospital sought coverage under a CGL policy, which stated that the insurer, Hartford, would pay “those sums that the insured becomes legally obligated to pay as damages because of … ‘personal and advertising injury’”[4] and defined “personal and advertising injury” to include “[o]ral, written or electronic publication of material that violates a person’s right of privacy.”[5]

Hartford initiated litigation seeking a declaration that the statutory relief sought by the claimants was barred under an exclusion for “Personal And Advertising Injury … [a]rising out of the violation of a person’s right to privacy created by any state or federal act.”[6] The hospital moved to dismiss Hartford’s complaint, arguing that the exclusion did not apply “because the plaintiffs in the underlying cases seek statutory remedies for breaches of privacy rights that were not themselves ‘created by any state or federal act,’ but which exist under common law and the California state Constitution.”[7]

Applying established rules of insurance policy construction, the court concluded that the hospital’s interpretation of the policy was reasonable and, therefore, “any relief awarded under the LPS and CMIA would be covered, rather than excluded, under Hartford’s Policy.”[8]

Read more on K&L Gates or download the full article here (pdf). The article previously appeared on Law360.com.

Category: Health Data

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