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National Fire Ins. Co. of Hartford v. E. Mishan & Sons, Inc.

United States District Court, S.D. New York

September 16, 2014

NATIONAL FIRE INS. CO. OF HARTFORD et al., Plaintiffs,
v.
E. MISHAN & SONS, INC., Defendant.

OPINION

THOMAS P. GRIESA, District Judge.

Plaintiffs National Fire Insurance Company of Hartford and Valley Forge Insurance Company brought this action, seeking a declaratory judgment that, under the terms of the applicable insurance policies, they are not required to defend E. Mishan & Sons, Inc. in two pending lawsuits. Plaintiffs and defendant move for summary judgment. The court grants plaintiffs' motion and denies defendant's motion.

The Facts

The Lawsuits

Plaintiffs assert that they are not required to defend E. Mishan & Sons, Inc. (doing business as Emson, Inc.) in lawsuits pending in the Circuit Court of Cook County, Illinois (the Daniell suit) and in the U.S. District Court for the Western District of Michigan (the Herman suit). In two very similar complaints, the suits allege that Emson worked with two other companies- Quality Resources, Inc. and Sempris, LLC-to charge consumers recurring monthly fees for membership programs that purport to offer discounts, coupons, and other money-saving deals. See Daniell Compl. ¶¶ 1-7; Herman Compl. ¶¶ 1-9. The scheme allegedly worked as follows: Emson advertised products on television and the internet. When a consumer purchased one of Emson's products through its website, the consumer provided certain private information-such as their phone number, address, and credit-card account information-in order to complete the transaction. Then, unbeknownst to the consumer, Emson transferred the consumer's information to Quality Resources. Quality Resources, under the guise of confirming the purchase from Emson, called the consumer and attempted to get him to enroll in "free trials" of subscription programs offered by Sempris. The information about the Sempris membership programs was allegedly deceptive and designed to trap customers into recurring credit-card charges once the free-trial period expired.

Emson's conduct-passing along the consumer's credit-card and billing information-is at the heart of the scheme. For example, the Daniell complaint states:

[R]ather than protect the sensitive information shared by the consumer (as any consumer would reasonably believe), Emson transfers this information to its business partner-Quality Resources-who then uses it to initiate unsolicited telephone calls to consumers marketing Sempris Membership Programs.

Daniell Compl. ¶ 3. The complaint goes on to describe how this practice, known as "data pass, " is prevalent in deceptive telemarketing schemes. See Daniell Compl. ¶¶ 14-16. In total, the Daniell complaint includes more than a dozen paragraphs of allegations about the transfer of private customer information. See, e.g., Daniell Compl. ¶¶ 3, 4, 14-16, 32, 33, 55, 102, 104, 115, 123, 148-50. The Herman complaint contains similar allegations. See Herman Compl. ¶¶ 2-3, 15-16, 33-34, 57, 101-02, 126, 151-54, 164, 179.

The Herman suit claims that Emson's conduct constitutes a violation of the Michigan Consumer Protection Act, M.C.L. § 445.903, and the Telephone Consumer Protection Act, 47 U.S.C. § 227; and various common-law torts. Similarly, the Daniell suit claims that Emson's conduct constitutes a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS § 505/1, and various common-law torts.

The Insurance Policies

Emson is the named insured under five primary commercial general liability policies issued by National Fire Insurance Company of Hartford that provided coverage from March 2, 2007, through March 4, 2011, and March 4, 2012, through March 4, 2013. Emson also had a primary commercial general liability policy issued by Valley Forge Insurance Company, effective from March 4, 2011, through March 4, 2012. Each of these policies provides liability coverage- indemnity and defense obligations-for "personal and advertising injury." The policies define "personal and advertising injury" to include "oral or written publication, in any manner, of material that violates a person's right to privacy."

The policies also contain five exclusions relevant to this case. First, the policies excludes coverage for "personal and advertising injury arising directly or indirectly out of an act or omission that violates" the Telephone Consumer Protection Act or "any federal, state, or local statute... that addresses or prohibits or limits the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information." Second, there is no coverage under any policy for injuries arising out of a breach of contract. Third, the policies exclude coverage for knowing violations of another's rights. Fourth, the policies exclude coverage for knowing dissemination of false information. Fifth, the polices do not cover equitable remedies.

Emson tendered the complaints to its insurers, but the insurers denied that they had any obligation to defend the suits. Subsequently, the insurers brought this action, seeking a declaratory judgment about their duty to defend the suits ...


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