State Farm Fire Cas. v. National Research Cent.

• Decision Date: 28 April 2006
• Docket Number: No. 05-1588.,05-1588.
• Citation: 445 F.3d 1100
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, Appellee, v. NATIONAL RESEARCH CENTER FOR COLLEGE AND UNIVERSITY ADMISSIONS; Donald Munce, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

445 F.3d 1100

STATE FARM FIRE AND CASUALTY COMPANY, Appellee, v. NATIONAL RESEARCH CENTER FOR COLLEGE AND UNIVERSITY ADMISSIONS; Donald Munce, Appellants.

No. 05-1588.

United States Court of Appeals, Eighth Circuit.

Submitted: April 21, 2006.

Filed: April 28, 2006.

Paul Schepers and James R. Lloyd, Kansas City, MO, for appellant.

Dale L. Beckerman and Brian G. Fedotin, Kansas City, MO, for appellee.

Before SMITH, HEANEY and BENTON, Circuit Judges.

BENTON, Circuit Judge.

Appellants National Research Center for College and University Admissions, and its president Donald M. Munce (collectively "the NRCCUA"), survey high-school students and distribute the results to colleges and universities for the purposes of recruitment and admissions.

In 2001, the Federal Trade Commission began investigating the survey's funding, and the use of survey data for commercial purposes not disclosed to students. In a consent decree, the FTC eventually ordered the NRCCUA to stop misrepresentations and to make clear and conspicuous disclosures. The NRCCUA made no money payments under the FTC order.

Several state attorneys general then investigated the NRCCUA for violations of their consumer-protection laws, initially requesting only documents. Eventually, the Iowa Attorney General, acting also for 26 other states, demanded that the NRCCUA pay $300,000 as part of an Assurance of Voluntary Compliance. The Missouri Attorney General, after a separate investigation requested that the NRCCUA pay $20,000 in another Assurance. In addition to these sums, the NRCCUA incurred its own attorney's fees responding to the states and the FTC.

The NRCCUA has a business liability policy from appellee State Farm Fire and Casualty Company. The Policy states:

[State Farm] will pay those sums that the insured becomes legally obligated to pay as damages because of . . . personal injury or advertising injury to which this insurance applies. . . .

. . . .

[State Farm] will have the right and duty to defend any claim or suit seeking damages payable under this policy even though the allegations of the suit may be groundless, false or fraudulent.

The Policy does not define the term "damages."

State Farm asked the district court to declare that the Policy does not require it to reimburse, defend, or indemnify the NRCCUA for any payment in response to the FTC and the states. The NRCCUA counterclaimed, seeking a declaration that the Policy requires State Farm to pay and indemnify it for all costs and expenses incurred in defending those complaints. The court granted summary judgment for State Farm, finding that the claims against the NRCCUA were not for "damages" under the Policy. The NRCCUA appeals under 28 U.S.C. § 1291.

This court reviews de novo the district court's grant of summary judgment. See Pieper, Inc. v. Land O'Lakes Farmland Feed, LLC, 390 F.3d 1062, 1065 (8th Cir.2004). The parties stipulated to the facts, both moved for summary judgment, and agree there is no genuine issue of material fact. Summary judgment is therefore proper if either party is entitled to judgment as a matter of law. See id.; Fed.R.Civ.P. 56(c). The district court's interpretation of a provision in an insurance policy is reviewed de novo. Pac. Ins. Co. v. Burnet Title, Inc., 380 F.3d 1061, 1064 (8th Cir.2004). This court applies Missouri law in this diversity case. Id.

I.

State Farm argues that the payments sought are not covered under the Policy because they are not caused by "personal injury" or "advertising injury." The Policy defines both terms to include "oral or written publication of material that violates a person's right of privacy." The Policy does not define the term "privacy." According to State Farm, no relief was sought from the NRCCUA for violation of privacy.

To determine coverage, this court compares the underlying allegations to the language of the insurance policy. See Reliance Ins. Co. v. Shenandoah South, Inc., 81 F.3d 789, 791-92 (8th Cir.1996), citing Benningfield v. Avemco Ins. Co., 561 S.W.2d 736 (Mo.Ct.App.1978). The first step is to detail the allegations of the FTC and the state attorneys general. In its main letter to the NRCCUA's attorney, the FTC said that it believed the "NRCCUA and its principal, Mr. Munce, violated Section 5 of the FTC Act by misrepresenting how personal information collected from high-school students though the [Survey] would be used and how the Survey was funded." Enclosed was a draft complaint that stated:

In truth and in fact:

A. Information collected from high school students through the Survey is shared not only with colleges, universities, and other entities provided educational-related services, but also with commercial entities for marketing purposes.

B. The survey is not funded solely by educational institutions, but also receives substantial funding from ASL and ECI for commercial purposes.

Therefore, the representations set forth in [the Survey] were, and are, false and misleading.

The Missouri Attorney General alleged in its Assurance of Voluntary Compliance that the NRCCUA has released personally identifiable information by selling it to commercial third-parties not disclosed to the students. Similarly, the Iowa Attorney General alleged that the NRCCUA, in violation of its own privacy statement, shared students' information with commercial entities.

This court agrees with the district court that the FTC and the state attorneys general allege a personal injury for invasion of privacy. Webster's Third New International Dictionary (1966) defines "privacy" as "isolation, seclusion, or freedom from unauthorized oversight or observation." This ordinary, lay definition encompasses the investigating entities' allegations. See Farmland Indus., Inc. v. Republic Ins. Co., 941 S.W.2d 505, 508 (Mo. banc 1997); cf. Universal Underwriters Ins. Co. v. Lou Fusz Auto. Network, Inc., 401 F.3d 876, 881 (8th Cir.2005) (unsolicited faxes are "invasions of privacy"). Gathering and disseminating personal information beyond disclosed terms arguably violates "privacy," as evidenced by the "Privacy Statement" at the bottom of the NRCCUA's surveys. State Farm objects at length that the gravamen of the investigating entities' complaints is "misrepresentations," but the Policy covers occurrences which result in personal injury or advertising injury. The claims against the NRCCUA allege such occurrences.

II.

The district court ruled that State Farm had no duty to defend because the payments sought are fines and penalties, and thus not do qualify as "damages" under the policy. The court relied on the Missouri Supreme Court's decision in Farmland Industries, Inc. v. Republic Insurance Co., which states that "fines" and "penalties" are not "damages." See Farmland, 941 S.W.2d at 510-11.

To determine coverage, this court compares the allegations in the underlying claims to the language of the insurance policy. See Reliance Ins. Co., 81 F.3d at 791-92, citing Benningfield, 561 S.W.2d at 736. Uncertainty about coverage is resolved in favor of the insured, here the NRCCUA. See Howard v. Russell Stover Candies, Inc., 649 F.2d 620, 623 (8th Cir. 1981).

A.

The record has no clear statement of the remedies the FTC initially sought from the NRCCUA. However, the FTC did not seek money. The parties have stipulated that, in the course of negotiating the Consent Order, "the FTC did not demand any payment from either defendant herein." This foreshadows the remedy the FTC ultimately got in the Consent Order: an agreement that the NRCCUA stop making misrepresentations and make clear and conspicuous disclosures.

To show that the relief sought by the FTC constitutes "damages," the NRCCUA relies on Farmland, where the Missouri Supreme Court held that the term "damages" is broad enough to include equitable relief such as a consent agreement with the EPA to clean up hazardous substances. See Farmland, 941 S.W.2d at 508-509. The NRCCUA argues that the relief sought by the FTC is similar.

However, the outcome in Farmland depends on the fact that the relief sought in that case (unlike the relief sought here) was compensatory. The Missouri Supreme Court invokes the definition of "damages" as "compensation or satisfaction imposed by law for a wrong or injury caused by a violation of a legal right." Id. at 508 (quoting Webster's Third New International Dictionary 571 (1961)) (emphasis added). The court reasons that the action required under the consent agreement "is a cost that Farmland is legally obligated to pay as compensation or satisfaction for a wrong or injury." Id. at 509 (emphasis added). In contrast, the relief sought by the FTC — an order that the NRCCUA stop making misrepresentations and make clear and conspicuous disclosures — is not designed to compensate anyone. Therefore, that relief does not constitute "damages" under the Policy.

B.

The initial requests for documents from the attorneys general do not mention payments at all, and thus do not trigger the duty to defend under the Policy. The Assurances of Voluntary Compliance, in contrast, are claims seeking money payments. This issue is whether these money payments are "damages" under the Policy.

As for the sums demanded by the Missouri Attorney General, the NRCCUA is to pay $5,000 to the "Missouri Merchandising Practices Revolving Fund for use by the Attorney General to reimburse attorney fees and other costs of the investigation leading to this Assurance and for funding for consumer education, investigations and litigation as allowed by law."

Missouri courts have held that payments to the Revolving Fund for the Attorney General's investigatory cost, attorneys fees and incidental expenses are "clearly punitive in nature" and are penalties and forfeitures. See State ex rel. Webster v. Cornelius, 729 S.W.2d 60, 65-66 (Mo.Ct.App. 1987); cf. State v. Polley, 2 S.W.3d 887, 894-95 (Mo.Ct.App.1999) (reimbursement of "the Attorney General's costs of investigation and prosecution"...