In a 3 page per curiam decision issued this week, the Connecticut Supreme Court upheld a lower court’s decision holding in Recall Total Information Management, Inc., et. al v. Federal Insurance Company, that Federal Insurance Co. and Scottsdale Insurance Co. commercial general liability policies did not provide coverage for losses of IBM contractors relating to a data breach from the loss of computer tapes. The incident occurred in 2007, when a cart holding computer tapes fell out of the back of a transportation company’s van on a highway exit ramp. Although the tapes could not be read on a personal computer and there was no indication that the information on the tapes was accessed, the tapes contained Social Security numbers, dates of birth and contact information of 500,000 IBM employees. It was reported that 130 of the tapes were removed by the roadside and were not recovered. The IBM employees were notified of the incident, but there was no evidence to indicate that any IBM employee was injured as a result of the incident.

The contractors sought insurance coverage for losses sustained from the incident and argued that the losses constituted personal injuries caused by the publication of material that violates a “person’s right to privacy.” They argued that the publication occurred when the IBM employees’ data was published “to a thief.” The appeals court disagreed, stating that “…we believe that access is a necessary prerequisite to the communication or disclosure of personal information, …the plaintiffs have failed to provide a factual basis that the information on the tapes was ever accessed by anyone.” The appeals court also held that a state law requiring notification of a data breach does not create a personal injury that would trigger coverage under the policies.

The Connecticut Supreme Court stated: “We…adopt the Appellate Court’s opinion as the proper statement of the issue and the applicable law concerning that issue.”

Insurance coverage cases of first impression, including for data breaches, are winding their way through the court system and will have important precedential effect. We are watching them closely and will keep you apprised of their development.

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