Commercial General Liability Insurance Policy Coverage - Fair Credit Reporting Act Claims

There have been a spate of claims filed around the country under the Fair Credit Reporting Act ("FCRA") class action, asserting that prescreened credit offers that, once responded to, permit access to a consumer's credit information, do not constitute a "firm offer of credit" for purposes of the FCRA and therefore the accessing of the individual's credit information violated the FCRA. See e.g., Cole v. U.S. Capital Inc., 389 F.3d 719 (7th Cir. 2004). See also April B. Chang, Valuables in Your Mailbox? How the Concept of Value in Cole v. U.S. Capital Inc. Enhances the FCRA's Guidelines Concerning Creditor Marketing, 10 N.C. Banking Inst. 209 (March 2006). Fieldstone Mortgage Company was sued in federal district court in Illinois on such a FCRA claim. Fieldstone submitted the claim to its commercial general liability carrier, Zurich American Insurance Co., contending that Zurich had a duty to defend. Zurich agreed to defend under a complete reservation of rights, including the right to seek declaratory relief, the right to withdraw from the defense, and the right to seek reimbursement of defense costs. Thereafter, Zurich filed a declaratory judgment action in federal district court in Maryland, seeking a declaration that it had no duty to defend or to indemnify. Fieldstone counterclaimed and sought summary judgment on Zurich's duty to defend under the coverage for "personal and advertising injury." Zurich cross-motioned for summary judgment. Judge Blake held that there was coverage, and ordered Zurich to defend. 2007 U.S. Dist. LEXIS 81570 (D.Md., Oct. 26, 2007).

Zurich argued that the policy's "advertising injury" language did not cover the FCRA claims and asserted, alternatively, that a policy exclusion precluded coverage. The court reviewed the right to privacy argument, with Zurich contending that FCRA does not establish a "right of privacy" recognized by the insurance policy, relying on Resource Bankshares Corp. v. St. Paul Mercury Insurance Co., 407 F.3d 631 (4th Cir. 2005). Judge Blake pointed out that Resource Bankshares made a distinction between two types of potentially affected privacy rights, one involving the manner of the advertisement and the other involving the content of the advertisement. In Resource Bankshares, the court found that the underlying statute, the Telephone Consumer Protection Act, was intended to protect consumers only from the intrusive nature of junk faxes - not the content of the faxes themselves.

Here, Judge Blake noted that the opposite situation was present - the Illinois FCRA lawsuit against Fieldstone involved not only the manner of Fieldstone's solicitation but also the message's content - the unauthorized accessing of the plaintiff's credit records.

The court then analyzed whether the term "publication" had been met by the facts and circumstances of this case - the word "publication" not being defined in the policy. Zurich argued that for it to constitute a "publication", the information that violated the right of privacy must be divulged to a third party. Judge Blake found that the majority of the circuits that have examined that question in the context of an "advertising injury" provision have found that publication to a third party is not an essential element of the claim.

Based on this analysis, Judge Blake concluded that Zurich had been obligated to pay Fieldstone's legal fees to defend as it had done during the pendency of the litigation. Fieldstone argued that Zurich was obligated to pay its legal fees associated with its defense against the declaratory judgment action and Judge Blake agreed, stating that "the benefit Fieldstone bargained for would be substantially dissipated if Fieldstone were forced to pay the costs of the suit brought by Zurich seeking to avoid its obligations."

Supreme Court Update

Kentucky Retirement Systems v. EEOC

Yesterday, the Court heard oral argument in Kentucky Retirement Systems v. EEOC, No. 06-1037. This was, for both sides, an extraordinarily well presented oral argument. Robert D. Klausner who argued for the Kentucky Retirement Systems was very strong and cogent in presenting his argument and in responding to the many questions in a factually very complex case. Malcolm L. Stewart an Assistant Solicitor General ably presented the government's point of view.

There was some discussion of the term "arbitrary" age discrimination, focusing on whether or not that adjective is, in fact, part of the statute. A reading of the argument would seem to indicate that that argument met with little, if any, favor with the justices. Justice Scalia, at one point, said of the term "arbitrary" which is in the preamble, that petitioner would be in a stronger position if it was in the legislative history. That seemed faint hope, given Justice Scalia's strong views about legislative history.

Bridge v. Phoenix Bond & Indemnity Co., No. 07-210

The Court accepted cert. in this civil RICO case to decide the issue that twice previously it had been unable to reach, that is, whether the plaintiff must demonstrate and prove reliance on the alleged misrepresentations by the defendant. This dispute arises out of notions of "proximate causation". The question being whether proof of injury in fact is sufficient or whether plaintiff must establish that its injury was proximately caused by the defendants' scheme. And, to establish that one was injured by a fraudulent scheme, it is argued, on the one hand, that the direct victim may recover whether or not it is the direct recipient of the false statements and, on the other hand, it is argued that the plaintiff must show that they in fact relied upon the defendants' material misrepresentations.

Sprint Communications Co., L.P. v. APCC Servs., Inc.

The Court also accepted cert. at its January 4th conference in Sprint Communications Co., L.P. v. APCC Servs., Inc., No. 07-552, the question being whether a plaintiff who has assigned to it the right to pursue a legal claim, and stands to gain no proceeds from the outcome of the litigation, has standing to sue. This is APCC's second trip to the Supreme Court. The Supreme Court granted Sprint's petition for cert. from the earlier decision (418 F.3d 1238 (2005)) , and vacated the judgment and remanded for further consideration in light of the Court's decision in Global Crossing Telecommunications, Inc. v. Metrophones Telecommunications, Inc., 127 S.Ct. 1513 (2007). Here, the standing question arises from payphone service providers assigning to APCC the right to litigate their dispute with Sprint over the amount of certain payments that Sprint was required by federal regulations to make to the PSPs. The PSPs assigned their claims to APCC for the purposes of collection and agreed to finance the litigation, and APCC then sued Sprint on behalf of the PSPs. Under the assignments, APCC can gain or lose nothing from the outcome of the case because all of the proceeds go to the PSPs. The D.C. Circuit held that APCC had standing to sue Sprint.

WKB Associates, Inc. v. Fair Housing Council, Inc.

At its January 4th conference, the Court declined to review the Sixth Circuit's decision in WKB Associates, Inc. v. Fair Housing Council, Inc., No. 07-421. A quick reading of the petition, the opposition and an amicus brief does not readily indicate why the Court declined to take the case, which would have presented a host of issues that several Justices on the Court have expressed an interest in addressing. Among the issues were the status of Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982), which had been relied upon, in part, as a basis for decisions regarding organizational standing. Another issue was whether organizational standing and the required demonstration of an injury in fact can be based upon the diversion of the organization's resources to litigation - related expenses. And, finally, the case presented a familiar issue for the Court, whether the continuing violation doctrine has any continued vitality in fair housing design and construction cases. Recently, Judge Bennett of the District of Maryland addressed some of these questions in Kuchmas v. Towson University, 2007 WL 2694186, 2007 U.S. Dist. LEXIS 66689 (D. Md., Sept. 10, 2007).


When Do State Anti-Discrimination Laws Preempt Common Law Claims

Recently, the D.C. Court of Appeals addressed the question whether a harassment claim under the local D.C. Human Rights Act "preempts" common law claims. Griffin v. Acacia Life Ins. Co., 2007 D.C. App. LEXIS 266 (D.C. May 24, 2007). The D.C. Court of Appeals held that the tort claim of negligent supervision could not be predicated on a violation of the D.C. Human Rights Act as a common law claim of negligent supervision may be predicated only on common law causes of action or duties otherwise imposed by the common law and not by duties imposed by statute. Thus, a negligent supervision claim could be predicated on a battery, for example, but not the Human Rights Act. The Court emphasized that it did not intend to suggest that the Human Rights Act preempts or otherwise abolishes common law causes of action based on the same set of operative facts. The Court also emphasized that its holding was limited to the tort of negligent supervision and its earlier decisions permitting common law claims for intentional infliction of emotional distress to be predicated on violations of the Human Rights Act were unaffected by this decision.

Now, there is an interesting law review that comprehensively covers this subject. See Jarod S. Gonzalez, State Anti Discrimination Statutes and Implied Preemption of Common Law Torts: Valuing the Common Law, 59 S.C.L. Rev. 115 (Fall 2007).

Has The Supreme Court Moved Somewhat Away From Strict Scrutiny In Affirmative Action Cases

Some had opined that Justice Kennedy's opinion in Parents Involved In Community Schools v. Seattle School District No. 1, 127 S. Ct. 2738 (2007) had approved less than strict scrutiny in certain circumstances. Now, we have an excellent piece of scholarship by Samuel Estreicher in the CATO Supreme Court Review where he discusses Justice Kennedy's concurrence which suggests less than strict scrutiny where race-conscious objectives are achieved through non-racial means. See Samuel Estreicher, The Non-Preferment Principle and the "Racial Tiebreaker" Cases, 239 (CATO Supreme Court Review 2007) (available at http://www.cato.org/pubs/scr/2007/estreicher.pdf).

Spoliation Of Evidence

Recently, in EEOC v. LA Weight Loss, 509 F.Supp. 2d 527 (D. Md. 2007), Judge Quarles of the Federal District of Maryland addressed the question whether EEOC was entitled to an adverse inference instruction because of the defendant's violations of Title VII's document-retention requirements set forth in 29 C.F.R. Section 1602.14.

"Don't Darken My Door Again" Clauses In Employment Settlements

In the most recent issue of The Labor Lawyer, there is an excellent article on the nettlesome question whether a clause in an employment discrimination settlement agreement that provides that the settling former employee will never reapply for employment with the settling employer are valid. See Charles H. Fleischer, Validity and Effect of Will-Not-Reapply Covenants in Employment Discrimination Settlement Agreements, Vol. 23, No. 2, 151 (Fall 2007, The Labor Lawyer).

Recruiting For Employees By Email

A troublesome article in the same issue of The Labor Lawyer suggests, in a piece of excellent scholarship, that there are a host of potential claims against employers merely for the fact that they attempt to recruit employees by email. See Theodore A. Olsen, The Dangers of E-mail Recruiting: One Person's "Sales Pitch" Is Another Person's "Spam", Vol. 23, No. 2, 163 (Fall 2007, The Labor Lawyer). For example, the author discusses the Controlling the Assault of Non-solicited Pornography & Marketing Act of 2003 (CAN-SPAM), 15 U.S.C. Sections 770-13(2004) and suggests that the criminal and civil provisions of that statute need to be considered before email recruiting.