Last week, the United States District Court for the Southern District of Texas held that an Electronic Data and Distribution of Material in Violation of Statutes exclusion, a variant of the Telephone Consumer Protection Act (“TCPA”) exclusion, did not prohibit coverage for an insured’s wrongful, online publication of genetic data in violation of a statute. Evanston Ins. Co. v. Gene By Gene, Ltd., 2016 WL 102294 (S.D. Texas, Jan. 6, 2016). In so holding, the court construed the exclusion to address solely intrusion upon seclusion claims. The facts of the case are straightforward.
The insured, Gene by Gene Ltd. (“GBG”), owned and operated a genealogy website whereby users of the site were offered the opportunity to take DNA tests and then use their genetic information from the tests to learn more about their ancestry and connect with other users whose results matched their own results in varying degrees. Gene By Gene, 2016 WL 102294 at *1. An underlying plaintiff sued GBG in Alaska federal court, alleging that GBG improperly published his DNA test results on its website without his consent and in violation of Alaska’s Genetic Privacy Act. Id. The Genetic Privacy Act prohibits disclosure of a person’s DNA analysis without written and informed consent. See AS §18.13.010.
GBG tendered its defense to its insurer, which issued four professional liability policies providing coverage for “personal injury,” defined therein as injury arising out of “oral or written publication of material that violates a person’s right of privacy.” Id. at *1, *3. The insurer, however, denied coverage based on an “Electronic Data and Distribution of Material in Violation of Statutes” exclusion. Id. at *1. Coverage litigation ensued and GBG moved for summary judgment.
GBG contended that defense coverage existed because the underlying action alleged injury that arises out of the written publication of material that violates a person’s right of privacy. The insurer contended that Distribution of Material exclusion applied because the exclusion prohibited coverage for violation of “any other statute, law, rule, ordinance, or regulation that prohibits or limits the sending, transmitting, communication or distribution of information or other material.” Id. *2. Specifically, the insurer argued that the exclusion applied because the underlying action was brought pursuant to a statute (the Genetic Privacy Act), which prohibits the transmission, communication, or distribution of information or other material, namely, the public disclosure of a person’s DNA analysis on Gene by Gene’s website. Id. at *4. The court held that the underlying action alleged “personal injury” because the action asserted “the publication of material—the DNA analysis—that allegedly violates a person’s right to privacy.” Id. at *3. It then held that the Distribution of Material exclusion did not apply.
The court concluded that the insurer’s reading of the exclusion was too broad and would render the policies’ advertising injury and personal injury coverage illusory. Id. at *4-5. The exclusion prohibited both statutory and common law violations. Because both advertising injury (libel and defamation) and personal injury (invasion of privacy) inherently involved communications in violation of law, the court reasoned that, under the insurer’s reading of the Distribution of Material exclusion, the exclusion would preclude coverage for all instances advertising injury and personal injury. Id. at *5. The court further noted that in some states, such as Texas, “traditional defamation” injuries, like libel and disparagement of goods and services, are regulated by statute. Id. The court concluded that the exclusion was not intended to preclude such claims.
Yet, perhaps most compelling to the court was its conclusion that the intent and protected interests behind the Distribution of Material exclusion and the Genetic Privacy Act differed. The court held that the Distribution of Material exclusion, another variant of the TCPA exclusion, was intended to address intrusion upon seclusion claims, a protection that was not contemplated by the Genetic Privacy Act:
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 third-parties. 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. [Emphasis added.]
Id. at *6. Because of this mismatch, the exclusion did not apply.
What this case means. This case is interesting because it addresses a new twist on the TCPA exclusions. Are cybersecurity claims next? Some might herald this decision as a defeat for insurers and a scaling back of the exclusion. My thought – not really. The court construed the exclusion to address solely intrusion upon seclusion claims, which is not that remarkable – although, maybe unwarranted. Yet, it is important remember that by including violations of mere “law” within its scope, the form of the exclusion at issue was very broad – indeed, broader than many variants of the TCPA exclusion. That distinction was not lost on the court, which believed (and perhaps rightly so) that the fundamental logic for applying the exclusion in the case before it would have eviscerated coverage under the policy’s “advertising injury and personal injury” insuring agreement. The court also recognized a potential mismatch between the exclusion and the Genetic Privacy Act. It’s an interesting observation. However, by then, the Court already had made its decision.