Recall Total Info. Mgmt., Inc. v. Fed. Ins. Co.

• Decision Date: 14 January 2014
• Docket Number: No. 34716.,34716.
• Citation: 83 A.3d 664,147 Conn.App. 450
• Court: Connecticut Court of Appeals
• Parties: RECALL TOTAL INFORMATION MANAGEMENT, INC., et al. v. FEDERAL INSURANCE COMPANY et al.

147 Conn.App. 450

83 A.3d 664

RECALL TOTAL INFORMATION MANAGEMENT, INC., et al.

v.FEDERAL INSURANCE COMPANY et al.

No. 34716.

Appellate Court of Connecticut.

Argued Oct. 11, 2013.

Decided Jan. 14, 2014.

Edmund M. Kneisel, pro hac vice, with whom were Lawrence G. Rosenthal, and, on the brief, Matthew T. Wax–Krell, Hartford, and Brian K. Epps, pro hac vice, for the appellants (plaintiffs).

Melicent B. Thompson, with whom was Eric S. Lankton, Simsbury, for the appellee (named defendant).

Robert D. Laurie, with whom, on the brief, was Elizabeth F. Ahlstrand, for the appellee (defendant Scottsdale Insurance Company).

LAVINE, KELLER and SULLIVAN, Js.

LAVINE, J.

This breach of an insurance contract dispute involves the interpretation of a personal injury clause in a commercial general liability policy. The plaintiffs, Recall Total Information Management, Inc. (Recall) and Executive Logistics, Inc. (Ex Log), appeal from the grant of summary judgment in favor of the defendants, Federal Insurance Company (Federal) and Scottsdale Insurance Company (Scottsdale).¹ On appeal, the plaintiffs claim that the trial court improperly construed the insurance contract at issue by concluding that (1) the defendants did not have a duty to defend, and (2) the losses associated with a data-loss incident were not personal injuries. We affirm the judgment of the trial court.

The following facts, as agreed to in the parties' stipulation of facts, are germane to the resolution of this appeal. In October, 2003, Recall entered into a vital records storage agreement with International Business Machines (IBM) whereby Recall agreed to transport and store various electronic media belonging to IBM. In February, 2006, Recall entered into a subcontract with Ex Log to provide transportation services for the electronic media. Under the subcontract with Recall, Ex Log was required to maintain various insurance policies, including a $2 million commercial general liability policy and a $5 million umbrella liability policy, all naming Recall as an additional insured. The defendants issued the required insurance.²

On February 23, 2007, Ex Log dispatched a transport van to move computer tapes (tapes) from an IBM facility in New York to another location. During transport, a cart containing the tapes fell out of the back of the van near a highway exit ramp. The parties agree that approximately 130 of the tapes were removed from the roadside by an unknown person and never recovered.

The tapes that were never recovered contained employment-related data for some 500,000 past and present IBM employees. This information included social security numbers, birthdates, and contact information. After being notified that the tapes had been lost, IBM immediately took steps to prevent harm from any dissemination of this personal information. These steps included notification to potentially affected employees and the establishment of a call center to answer inquiries regarding the lost data. IBM also provided those who could be affected by the loss with one year of credit monitoring to protect against identity theft. IBM claimed a total of more than $6 million in expenses ³ for the mitigation measures it took and entered into a negotiated settlement with Recall for the full amount of the loss.

Thereafter, Recall sought indemnification from Ex Log. Ex Log then filed claims against the policy, but the defendants denied coverage. Following the denial of coverage, Recall and Ex Log entered into a settlement agreement and on June 22, 2009, Ex Log signed a promissory note in favor of Recall for $6,419,409.79 and assigned all of its rights under the policy to Recall.

The plaintiffs commenced the present action against the defendants on July 24, 2009. The complaint alleged several counts, including breach of an insurance contract. The defendants filed motions for summary judgment with respect to the count alleging breach of an insurance contract on the ground that, as a matter of law, they had no duty to defend and that the plaintiffs' loss was not covered by the policy. The trial court granted the motions for summary judgment, concluding that the defendants had not waived their coverage defenses and that the plaintiffs' losses were not covered under either the property damage or the personal injury provisions of the policy.

With respect to whether the defendants had waived their coverage defenses, the trial court concluded that, under the policy, the defendants only had a duty to defend against a “suit.” The trial court found that the term “suit” was unambiguous and declined to interpret that term to include mere negotiations. The trial court then turned to whether the loss associated with the lost tapes was covered under the terms of the policy. The trial court addressed whether the loss was covered under the property damage provision of the policy and determined that the data loss constituted intangible property, which was expressly excluded from coverage.⁴

Next, the trial court addressed whether there was coverage under the personal injury provision of the policy. The trial court noted that the plaintiffs did not allege that the information contained on the tapes was ever accessed by anyone following the incident in which the tapes were lost. Accordingly, the trial court reasoned: “[T]here has also been no injury to a person. IBM paid notification costs, but IBM is not a person ⁵ and there is no allegation that its right to privacy was violated. Additionally, there is no evidence—even now, some four years after the incident—that any person suffered identity theft or that the privacy of any IBM employee was violated as a result of the loss or theft of the data tapes.” The trial court then rendered summary judgment in favor of the defendants. The plaintiffs filed a motion for reargument, which was denied. This appeal followed. ⁶

On appeal, the plaintiffs contend that the trial court erred when it construed the policy and concluded that (1) the defendants did not have a duty to defend, and (2) the loss of the tapes did not constitute a personal injury. We disagree.

“Our standard of review of a trial court's decision to grant a motion for summary judgment is well established.... The judgment sought shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.... A material fact is a fact that will make a difference in the result of the case.... The facts at issue are those alleged in the pleadings.... The party seeking summary judgment has the burden of showing the absence of any genuine issue as to all material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law.... [T]he party adverse to such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.... The test is whether a party would be entitled to a directed verdict on the same facts....

“While the court must view the inferences to be drawn from the facts in the light most favorable to the party opposing the motion ... a party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment.... On appeal, however, the burden is on the opposing party to demonstrate that the trial court's decision to grant the movant's summary judgment was clearly erroneous.” (Citations omitted; internal quotation marks omitted.) Norse Systems, Inc. v. Tingley Systems, Inc., 49 Conn.App. 582, 590–91, 715 A.2d 807 (1998). Finally, “[o]ur review of the trial court's decision to grant [a] motion for summary judgment is plenary.... Moreover, [c]onstruction of a contract of insurance presents a question of law for the court which this court reviews de novo.” (Citation omitted; internal quotation marks omitted.) R.T. Vanderbilt Co. v. Continental Casualty Co., 273 Conn. 448, 456, 870 A.2d 1048 (2005).

I

We first address the issue of whether the defendants have waived their coverage defenses. The plaintiffs contend that the trial court erred in ruling that the defendants did not have a duty to defend. The trial court found, on the basis of the policy, that the defendants had not breached their duty to defend, and consequently, had not waived their coverage defenses pursuant to our Supreme Court's ruling in Black v. Goodwin, Loomis & Britton, Inc., 239 Conn. 144, 160, 681 A.2d 293 (1996) (when insurer breaches duty to defend, insurer will be bound when insured enters into settlement agreement in good faith). On the basis of our own construction of the policy, we agree with the trial court.

“Where, as in the present case, an insured alleges that an insurer improperly has failed to defend and provide coverage for underlying claims that the insured has settled the insured has the burden of proving that the claims were within the policy's coverage....” Metropolitan Life Ins. Co. v. Aetna Casualty & Surety Co., 249 Conn. 36, 55, 730 A.2d 51 (1999). ⁷

The policy provides, in relevant part, that: “[s]ubject to all of the terms and conditions of this insurance, we will have the right and duty to defend the insured against a suit, even if such suit is false, fraudulent, or groundless.” The policy defines a “suit” as “a civil proceeding in which damages, to which this insurance applies are sought ... [and] includes arbitration or other dispute resolution proceeding ... to which the insured must submit or does submit with our consent.”

The plaintiffs' claim is based on the following additional facts. Following the incident in which the tapes were lost, IBM retained a consultant and took remedial actions. IBM also made a demand against Recall on March 30, 2007, for all of the costs that it...