Last year, the California Supreme Court held that retailers may violate the Song-Beverly Credit Card Act of 1971, Cal. Civil Code § 1747 et seq., enacted to protect the personal privacy of credit card users, by requesting and recording zip codes during credit card transactions because zip codes qualify as protected "personal identification information" under the Act. See Pineda v. Williams-Sonoma Stores, Inc., 51 Cal. 4th 524 (2011). In the wake of this ruling, class action lawyers have filed a barrage of lawsuits against retailers seeking damages of up to $1,000 per violation plus attorneys' fees and costs. A variety of insurance policies may provide retailers with coverage for losses incurred in connection with these cases, and coverage may extend not only to the costs of defense and settlements or judgments, but also to any attorney fees paid to plaintiffs' class counsel. Retailers with liability exposure should determine the scope of coverage available under their liability policies and take immediate steps to preserve their rights.
Commercial General Liability Coverage
Most CGL policies provide "advertising injury" coverage for liability arising out of the "oral or written publication, in any manner, of material that violates a person's right of privacy." Zip code claims of the type asserted in Pineda fall within this grant of coverage.
The coverage afforded by cyber policies varies widely in coverage, but most offer protection for liability arising out of the release or publication of private facts. There is a potential for coverage of zip code claims under such insuring clauses.
Directors & Officers Coverage
Particularly for privately-held companies, D&O policies often provide "entity coverage" for claims alleging "wrongful acts." Such policies afford a potential for coverage for zip code claims because they typically define "wrongful act" broadly to include any actual or alleged act, error, omission, neglect, breach of fiduciary duty or other wrongdoing.
Errors & Omissions Coverage
E&O policies principally cover claims arising from professional malpractice but often provide additional coverage for the violation of "privacy laws." This broader form of E&O coverage may offer protection for Song-Beverly claims.
Conclusion Companies sued for allegedly violating the Song-Beverly Act should evaluate all potential sources of insurance coverage and promptly notify all insurers whose policies may potentially afford coverage of such claims.
Kilpatrick Townsend's Insurance Recovery team can help ensure that the steps necessary to preserve insurance assets and maximize insurance recoveries are taken. The team presently is assisting a number of clients in coverage disputes involving zip code cases and has extensive experience representing policyholders in similar matters. Through negotiation, litigation and ADR proceedings, the team has helped clients recover billions of dollars in policy proceeds across a wide spectrum of insured losses.
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