Coverage for Claims Asserted in a Wage & Hour Proceeding Under an Employment Practices Liability Insurance: The Beat Goes On

In a brief note posted to Agents of America (www.AgentsofAmerica.org), Joseph P. Monteleone, of Tressler, LLP commented on Gauntlett v. Illinois Union Ins. Co., No. 5:11-CV-00455 EJD, 2012 WL 4051218 (N.D. Cal. Sept. 13, 2012) (“Gauntlett II”) noting that Judge Davila refrained from an expansive interpretation of Illinois Union’s duty to defend. Review of that opinion, in concert with the earlier order which, Monteleone’s note does not address, Gauntlett v. Illinois Union Ins. Co., No. 5:CV 11-00455-EJD, 2011 WL 5191808 (N.D. Cal. Nov. 1, 2011) (“Gauntlett I”), reveals that the district court reconsidered its earlier, and more restrictive, interpretation of the policy’s provisions.  Nevertheless, “Gauntlett II” (currently on appeal before the Ninth Circuit) too narrowly construed the duty to defend.

The allegations assert the deletion of 3,000 stored e-mail communications, changed settings on the computer to delete the stored e-mails, as well as manipulation of the settings.  These contentions evidence a classic common law invasion of privacy claim for “intrusion upon seclusion.”  Forensic review of those e-mails by a third party in connection with defense of that action, facts readily available to Illinois Union, could also be reasonably inferred from the conduct alleged.  This extrinsic evidence implicated potential coverage for invasion of privacy under the “making private facts public” prong. 

The district court failed to analyze the impact of the California Supreme Court’s seminal ruling in Scottsdale Ins. Co. v. MV Transp., 36 Cal. 4th 643, 654 (Cal. 2005) requiring review not only of allegations in the complaint, but facts reasonably inferable or otherwise known, as well as facts which reveal that the complaint could fairly be amended to state claims for covered liability.  This applicable test was met because the claimant’s allegation raised a “potential for coverage” as the facts referenced, and inferences reasonably drawn from those facts, supported a claim for invasion of the right of privacy.  See Pension Trust Fund v. Federal Ins. Co., 307 F.3d 944, 951 (9th Cir. (Cal.) 2002) (“[R]emote facts buried within causes of action that may potentially give rise to coverage are sufficient to invoke the defense duty[.]”).

The district court’s failure to acknowledge a potential claim under the “privacy invasion” offense is inconsistent with subsequent published authority, not considered by that decision, which addressed the analogous “personal injury” offense of “disparagement.” See Travelers Prop. Cas. Co. of Am. v. Charlotte Russe Holding, Inc., 207 Cal. App. 4th 969, 980 (2012), reh’g denied (July 31, 2012) rev’w denied (Sept. 21, 2012) (concluding that the policy language did not require pleading or poof of a trade libel tort, as the policy language “makes coverage for disparagement an alternative to coverage for libelous materials, not an element of that coverage.”).

Moreover, the court neither distinguished nor analyzed Netscape Communications Corp. v. Fed. Ins. Co., 343 F. App’x 271, 272 (9th Cir. (Cal.) 2009).  It concluded that potential coverage arose for violation for right of privacy and affirmed a finding of potential coverage where “AOL had intercepted and internally disseminated private online communications.”

It is therefore premature for commentators to speculate upon what legal weight Judge Davila’s second unpublished order in the Gauntlett & Associates case may have as this unpublished order is subject to de novo review by the Ninth Circuit.

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