On April 11, 2016, the United States Court of Appeals for the Fourth Circuit made headlines by holding that a commercial general liability (“CGL”) policy covers the defense of a data breach-related class action lawsuit. In Travelers Indem. Co. of Am. v. Portal Healthcare Solutions, LLC, No. 13-1944 (4th Cir. Apr. 11, 2016), the Fourth Circuit affirmed a 2014 decision from the Eastern District of Virginia holding that Travelers Indemnity Company of America (“Travelers”) has a duty to defend its insured, Portal Healthcare Solutions, LLC (“Portal”), in a 2013 class action lawsuit filed in New York State Court. This is a major victory for policyholders, in particular for those with potential cybersecurity-related claims under CGL policies without a cybersecurity exclusion. Attempts by the insurance industry to downplay the significance of this ruling are unavailing, and contrary to the arguments made before the court by various insurance industry trade groups, which had warned that a ruling in the policyholder’s favor would “undermine the certainty and predictability” necessary for the proper functioning of the insurance marketplace. In addition, and although policyholders going forward are well-advised to consider purchasing cyber/data breach insurance policies given the prevalence of cyber-related exclusions in current CGL forms, the Fourth Circuit’s interpretation of the coverage-defining term “publication” will have a much broader, policyholder favorable application in many other insurance claim contexts.
Two patients of Glen Falls Hospital alleged that when they conducted a search for themselves on Google, the first link that appeared was a direct link to their respective Glen Falls medical records. The underlying class action followed in April 2013, which was filed in New York State Court, and alleged that Portal, a business specializing in the electronic safekeeping of medical records, failed to secure a server containing confidential records for patients, making the records available for anyone to view online. Specifically, plaintiffs alleged that Glen Falls patients’ medical records were “accessible, viewable, copyable, printable, and downloadable from the Internet by unauthorized persons without security restriction from November 2, 2012 to March 14, 2013.” Portal had two CGL polices, both issued by Travelers for the policy periods of 2012 and 2013. The policies provided coverage for the “electronic publication of material that…discloses information about a person’s private life.” Travelers denied coverage and preemptively sued Portal in Virginia Federal Court.
In the coverage case, Travelers moved for summary judgment seeking a declaration that it does not have a duty to defend Portal in the class action suit. Portal also moved for summary judgment seeking an order compelling Travelers to defend. In its August 2014 decision, U.S. District Judge Gerald Bruce Lee found that Travelers has a duty to defend Portal because “making confidential medical records publicly accessible via an Internet search does fall within the plain meaning of ‘publication,’” thereby triggering the personal and advertising injury coverage provision in the insurer’s CGL policy. Travelers appealed.
The Fourth Circuit’s Ruling
The Fourth Circuit affirmed the District Court’s decision and ruled that Judge Lee correctly followed the “eight corners” rule by comparing the allegations of the complaint to the language of the policy. Additionally, the Fourth Circuit found that Judge Lee properly recognized that insurers must “use ‘language clear enough to avoid…ambiguity’ if there are particular types of coverage that it does not want to provide.”
The Fourth Circuit held that “[p]ut succinctly, we agree with the opinion that Travelers has a duty to defend Portal against the class-action complaint,” and that “[g]iven the eight corners of the pertinent documents, Travelers’ efforts to parse alternative dictionary definitions [of ‘publication’] do not absolve it of the duty to defend Portal.” To better understand the Fourth Circuit’s ruling, it is best to analyze the District Court’s ruling in more detail. Judge Lee first noted that the policies contained two prerequisites to coverage. First, there must have been a “publication,” which is undefined in the policies. Second, the published material must “give unreasonable publicity” to or disclose information about a person’s private life. Applying Traveler’s proposed dictionary definition of “publication,” the District Court reasoned that exposing medical records online placed a patient’s information before the public, which fell within the plain meaning of “publication.” Second, Judge Lee concluded that public availability of a patient’s confidential medical record constitutes “unreasonable publicity” to a patient’s private life and “disclose[d]” information about the patient’s private life.”
Significantly, for this and related claims, the District Court also rejected Travelers’ arguments that because Portal did not intend to publish the medical information and because there is no evidence that any third parties viewed the information, the policy does not cover the underlying allegations. Instead, “unintentional publication is still a publication.” Furthermore, Judge Lee reasoned that “[p]ublication occurs when information is ‘placed before the public,’ not when a member of the public reads the information placed before it.”
Portal Healthcare is a victory for policyholders and highlights that coverage may exist under their CGL policies through the “personal and advertising liability” coverage for liabilities relating to the disclosure, or “publication,” of personal information. In a digital age, where companies and individuals increasingly rely on the Internet in their personal and commercial activities, this ruling is critical because the issue of what constitutes “publication” in an Internet context can and will arise in a multitude of situations. Simply put, data breaches are not all about third-party intentional “hacking” anymore. It is refreshing, and for many policyholders about time, that our courts have begun to recognize that the “old school” way of viewing what constitutes a “publication” in an insurance context must come into line with today’s reality, a reality that must fully account for the rather amorphous character of the Internet. In this regard, note the discussion before the court regarding the steps that must be taken by Google in order for material, including plaintiffs’ medical records, to be indexed and made fully searchable on the web.
We finish with a word of caution—while policyholders should be optimistic, they should also carefully evaluate their insurance policies and coverage needs. In more recent years (generally 2014), the CGL ISO policy form and many CGL polices have been amended and now contain exclusions, or other language that excludes coverage for data breaches or other cyber security risks. And as highlighted by the American Insurance Association and Complex Insurance Claims Litigation Associates, which both filed an amicus brief in this case, over the past several years there has been a growing market for policies specifically tailored for cyber related claims. Policyholders should be mindful of those exclusions in their CGL policies, carefully examine their risks and insurance needs, and may need to look to other coverage products, such as cybersecurity policies, to fill any gaps in coverage.