On September 29, 2015, the United States Court of Appeals for the Seventh Circuit affirmed the district court’s order of dismissal and determined that First Mercury Insurance Company (“First Mercury”) did not have a duty to defend its insured, Defender Security Company (“Defender Security”), against a lawsuit that alleged that Defender Security illegally recorded telephone communications. On July 25, 2015, Kami Brown filed a class action lawsuit against Defender Security in California state court.  She alleged that Defender Security—a home security provider—violated California state law by recording telephone calls with her and the other class members without their permission and without notifying them that the home security provider was recording the calls.

Under the commercial general liability policy that Defender Security had purchased, First Mercury had a duty to defend its insured against lawsuits premised on certain “personal injuries” or certain “advertising injuries” allegedly committed by its insured.  The insurance company, however, denied coverage and refused to defend its insured in the class action lawsuit because (1) the policy also defined “personal injuries” and “advertising injuries” as those “arising out of . . . [o]ral or written publication of material that violates a person’s right of privacy” and (2) from its perspective, no “publication” had occurred.

Defender Security argued that publication had occurred when the disputed telephone conversations were transmitted to its recording devices.  In contrast, First Mercury contended that no publication had occurred because publication occurs only when material is shared with a third party and the disputed material in this case was never shared with a third party.

The Seventh Circuit rejected Defender Security’s definition of publication because it “would encompass a wide variety of acts that would strain (at best) any common understanding or usage of the term publication.”  Additionally, the Court refused to “draw the conclusion that publication includes the mere recording and storage of information when that information is not also communicated to another party or entity.”  The Seventh Circuit, therefore, set boundaries on the duty to defend in the context of lawsuits predicated on the unlawful recording of telephone conversations.

A copy of the Seventh Circuit’s Defender Security Company v. First Mercury Insurance Company opinion is available by clicking here.

Reporter, Barrett R. H. Young, Washington, D.C., +1 202 626 2928, bryoung@kslaw.com.