Camps Grocery Inc v. State Farm Fire & Casualty Company

Filing 15

MEMORANDUM OPINION. Signed by Magistrate Judge John E Ott on 10/252016. (KAM, )

FILED
2016 Oct-25 PM 04:37
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
MIDDLE DIVISION
CAMP’S GROCERY, INC.,
Plaintiff,
v.
STATE FARM FIRE & CASUALTY
COMPANY,
Defendant.

}
}
}
}
} Case No. 4:16-cv-0204-JEO
}
}
}
}
}

MEMORANDUM OPINION
The plaintiff in this action, Camp’s Grocery, Inc. (“Camp’s”), seeks a declaratory
judgment that its insurer, defendant State Farm Fire & Casualty Company (“State Farm”), is
obliged to defend and indemnify Camp’s in connection with an underlying lawsuit brought
against it in Alabama state court. (Doc1. 1). The parties have consented to an exercise of plenary
jurisdiction by a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Doc. 8). The
cause now comes to be heard on cross-motions for summary judgment. (Docs. 11, 12). Upon
consideration, the court concludes that State Farm’s motion for summary judgment is due to be
granted and that Camp’s cross-motion is due to be denied.

1

References to “Doc(s). ___” are to the document numbers assigned to the pleadings, motions,
and other materials in the court file as compiled and designated by the Clerk of the Court. Unless
otherwise noted, pinpoint citations are to the page of the electronically filed document in the
court’s CM/ECF system, which may not correspond to pagination on the original “hard copy” of
the document presented for filing.

I.

BACKGROUND
The objective material facts of this case are undisputed. Camp’s operates a grocery store

in Hokes Bluff, Alabama. It has been sued, along with its franchisor, Piggly Wiggly, LLC, and
fictitiously identified defendants, in a lawsuit filed in the Circuit Court of Etowah County,
Alabama. (Doc. 1-1). The plaintiffs in that underlying suit are three credit unions (the “Credit
Unions”). They allege that Camp’s computer network was hacked, compromising confidential
data on its customers, including their credit card, debit card, and check card information. That
breach, the Credit Unions claim, caused them to suffer losses on their cardholder accounts,
including for reissuance of cards, reimbursement of their customers for fraud losses, lost interest
and transaction fees, lost customers, diminished good will, and administrative expenses
associated with investigating, correcting, and preventing fraud. The Credit Unions maintain that
Camp’s is liable for such damage on the theory that the data breach was caused by Camp’s
failure to provide adequate computer systems and employee training and/or to maintain adequate
encryption and intrusion detection and prevention systems. Based on such allegations, the Credit
Unions raise claims against Camp’s under Alabama law claims for negligence, wantonness,
misrepresentation, and breach of contract, as well as under federal law for violation of the
Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq. Camp’s, in turn, has filed the instant action
against State Farm, demanding a declaratory judgment under 28 U.S.C. § 2201(a) establishing
that State Farm must defend and indemnify Camp’s in the underlying action. This court has
subject-matter jurisdiction pursuant to 28 U.S.C. § 1332.2

2

An action for declaratory relief under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), must
independently satisfy subject matter jurisdiction requirements. Vaden v. Discover Bank, 556
2

The State Farm policy under which Camp’s seeks coverage (Doc. 11-3, the “Policy”))
contains two principal sections, which are respectively captioned, “Section I -- Property” and
“Section II -- Liability.” (Doc. 11-3 at 54-55). The general insuring clause of Section I contains
a promise by State Farm to “pay for accidental direct physical loss to ... Covered Property,”
encompassing “Buildings” (“Coverage A”) and “Business Personal Property” (“Coverage B”), to
the extent provided in the Declarations. (Id. at 56). “Business Personal Property” is defined to
include “Property, used in your business, that you own, lease from others or rent from others, or
that is loaned to you,” as well as “Property of others that is in your care, custody or control ....”
(Id., Coverage B - Business Personal Property, ¶¶ 1, 2). However, “Covered Property” expressly
does not include “electronic data.” (Id. at 57, Property Not Covered ¶ 9; see also id. at 75,
Section I - Definitions ¶ 5). Similarly, the term “Accident” is defined as not including “any
defect, programming error, programming limitation, computer virus, malicious code, loss of
‘electronic data’, loss of access, loss of use, loss of functionality or other condition within or
involving ‘electronic data’ of any kind.” (Id. at 74, Section I - Definitions ¶ 1).
Turning to Section II of the Policy, the “Liability” insurance embodied therein includes a
“Coverage L” for “Business Liability.” (Id. at 76). The general insuring clause of that section
states in relevant part:

U.S. 49, 70 n. 19 (2009). The district courts have original jurisdiction over civil actions between
citizens of different states where the amount in controversy exceeds $75,000. 28 U.S.C. §
1332(a)(1). For purposes of the diversity statute, Camp’s is an Alabama citizen, while State
Farm is an Illinois citizen See 28 U.S.C. § 1332(c)(1); (Doc. 1 ¶¶ 3, 4, 5; Doc. 4 ¶¶ 3, 4, 5; Doc.
11-3 at 2 (“State Farm Fire and Casualty Company, A Stock Company with Home Offices in
Bloomington, Illinois”); State Farm Fire & Cas. Co. v. Rollins, 2016 WL 2760351, at *2 (E.D.
Va. May 12, 2016). Camp’s has also claimed that the relief it seeks has value in excess of the
jurisdictional minimum. (Doc. 1 ¶ 5).
3

[State Farm] will pay those sums that the insured becomes legally obligated to pay
as damages because of ‘bodily injury,’ ‘property damage,’ or ‘personal and
advertising injury’ to which this insurance applies. [State Farm] will have the
right and duty to defend the insured by counsel of our choice against any “suit”
seeking those damages. However, [State Farm] will have no duty to defend the
insured against any “suit” seeking damages for “bodily injury”, “property
damage” or “personal and advertising injury”, to which this insurance does not
apply. We may, at our discretion, investigate any “occurrence” or offense and
settle any claim or “suit” with or without the insured’s consent, for any reason and
at any time.
(Id. at 76, Coverage L ¶ 1). Section II also contains provisions specifically addressing computers
and electronic data. First, the term “property damage” as used in Section II is limited to liability
for harm to “tangible property,” which is defined not to include “electronic data.” (Id. at 89,
Section II - Definitions ¶ 21). And expressly excluded from liability coverage under Section II
are “damages arising out of the loss of, loss of use of, damage to, corruption of, inability to
access, or inability to manipulate electronic data.” (Id. at 81-82, Section II - Exclusions ¶ 18).
Camp’s claim against State Farm, however, does not rely upon the provisions of either
Section I or Section II of the Policy read in isolation. Instead, Camp’s theory that State Farm
owes it a defense and indemnity is based primarily upon two forms or endorsements attached to
the Policy, one entitled, “FE-8743 Inland Marine Computer Property Form” (Doc. 11-3 at 43-46
(“IMCPF”)), and the other, “FE-8739 Inland Marine Conditions.” (Id. at 40-42 (“IMC”))
(collectively the “Inland Marine endorsements”). Together, these contain terms and conditions
of “Inland Marine” coverage. Indeed, the only provisions of the Policy that Camp’s expressly
references in, or attaches to, its complaint are the Inland Marine endorsements. (See Doc. 1 ¶¶
16, 17; Doc. 1-2).
The IMCPF contains a general insuring provision stating in relevant part as follows:

4

INSURING AGREEMENT
We will pay for accidental direct physical loss to:
1.

“Computer equipment”, used in your business operations, that you own,
lease from others, rent from others, or that is loaned to you. ...

2.

Removable data storage media used in your business operations to store
“electronic data”.

* * *
We do not insure “computer programs” or “electronic data” except as provided in
the Computer Programs and Electronic Data Extension of Coverage.
(Doc. 11-3 at 43). The extension of coverage referenced above, in turn, provides in relevant part:
EXTENSIONS OF COVERAGE
1.

Computer Programs And Electronic Data
a.

We will pay for accidental direct loss to:
(1)

The following types of “computer programs” and
“electronic data” that you own, license from others, lease
from others, or rent from others:
(a)

(b)

(2)

“Computer programs” used in your business
operations;
The “electronic data” that exists in “computer”
memory or on “computer” storage media, used in
your business operations;

That portion of your customers’ “electronic data” that is
supplied to you for processing or other use in your business
operations. Coverage for customers’ “electronic data” is
limited to the specific data file(s) containing the
information you are processing or using in your business
operations.

We do not cover any property you lease to others, rent to others or
license to others. We do not cover “computer equipment” or
5

removable data storage media under this Extension Of Coverage.
This coverage extension is included in the Limit Of Insurance
shown on the Schedule Page.
Loss does not include any consequential loss except as may be
provided in the optional Loss Of Income And Extra Expense
coverage.
(Doc. 11-3 at 44). The above-referenced “optional Loss of Income and Extra Expense coverage”
in the IMCPF provides in relevant part:
OPTIONAL COVERAGE - LOSS OF INCOME AND EXTRA EXPENSE
1.

If a limit is shown on the Inland Marine Schedule Page for Loss Of
Income And Extra Expense, coverage under this form is provided, subject
to that limit, for the following:
a.

The actual “Loss Of Income” you sustain due to the necessary
“suspension” of your operations during the “'period of restoration”.
The “suspension” must be caused by damage or destruction to
property covered under this form, by a Covered Cause Of Loss;

b.

Any necessary “extra expense” you incur during the “period of
restoration” that you would not have incurred if there had been no
damage or destruction to property covered under this form, by a
Covered Cause Of Loss.

We will only pay for “Loss Of Income” or “extra expense” that you sustain
during the “period of restoration” that occurs within 12 consecutive
months after the date of loss. We will only pay for “ordinary payroll
expenses” for 90 days following the date of loss.
2.

We will not pay for:
a.

Any “extra expense” or increase of “Loss Of Income” caused by
suspension, lapse or cancellation of any license, lease or contract.
But if the suspension, lapse or cancellation is directly caused by the
“suspension” of your operations, we will cover such loss that
affects your “Loss Of Income” during the “period of restoration”;

b.

Any “extra expense” caused by suspension, lapse or cancellation of
any license, lease or contract beyond the “period of restoration”;
6

c.

Any other consequential loss;

d.

Loss caused by seizure or destruction of property by order of
governmental authority. But we will pay for acts of destruction
ordered by governmental authority and taken at the time of a fire to
prevent its spread.

(Doc. 11-3 at 45).
The IMC then outlines certain conditions generally applicable to coverage and claims
under IMCPF, including the following:
Coverage in the Inland Marine Form is primary to any coverage provided in the
policy this Form, is attached to, for the same property,
The following Conditions also apply:
1.

Agreement. We agree to provide the insurance described in this policy.
You agree to pay premiums when due and comply with the provisions of
this policy.

* * *
4.

Loss Payment. In the event of a loss covered by this policy:
* * *
b.

We will not pay you more than your financial interest in the
covered property.

c.

We may adjust losses with the owners of lost or damaged property
if other than you. If we pay the owners, such payments will satisfy
your claims against us for the owners’ property. We will not pay
the owners more than their financial interest in the covered
property;

d.

We may elect to defend you, at our expense, against suits arising
from claims of owners of property;

(Doc. 11-3 at 40).

7

The parties have now filed cross-motions for summary judgment on Camp’s claim
seeking a declaratory judgment, with each side relying upon the provisions of the Policy and the
Credit Unions’ complaint in the underlying suit. State Farm filed its motion first. (Doc. 11).
Camp’s cross-motion followed as part of Camp’s response in opposition to State Farm’s motion.
(Doc. 12). The motions have been fully briefed3 (see Doc. 11, 12, 13, 14) and are now ripe for
decision.
II.

REVIEW STANDARDS
Pursuant to Rule 56 of the FEDERAL RULES OF CIVIL PROCEDURE, a party is authorized to

move for summary judgment on a claim or defense asserted by or against the movant. Under that
rule, the “court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED.
R. CIV. PROC. 56(a). “Disposition of a summary judgment motion in a declaratory judgment
action is governed by the same basic principles that generally rule the grant or denial of such a
motion.” Bingham, Ltd. v. United States, 724 F.2d 921, 924 (11th Cir. 1984).
The party moving for summary judgment “always bears the initial responsibility of
informing the district court of the basis for its motion,” relying on submissions “which it believes
demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986); see also Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991);

3

Both parties have requested oral argument on their respective motions for summary judgment.
(Doc. 11 at 1; Doc. 12 at 1). However, the court is not required to grant an oral hearing under
Rule 56. Moore v. State of Fla., 703 F.2d 516, 519 (11th Cir. 1983). And because the facts are
undisputed and the court finds that the issues raised by the parties are adequately addressed by
the briefs, oral argument would not be of significant aid and is therefore unnecessary. See
George W. Bennett Bryson & Co. v. Norton Lilly & Co., 502 F.2d 1045, 1051 (5th Cir. 1974).
8

Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970). Where the movant will not bear the burden of
proof on a claim or issue at trial, the movant can satisfy that burden by pointing to specific
portions of the materials on file that either negate an essential element of the non-movant’s claim
or that affirmatively indicate “that the party bearing the burden of proof at trial will not be able to
meet that burden.” Clark, 929 F.2d at 608; see also Four Parcels, 941 F.2d at 1438 & n.19. By
contrast, when the moving party has the burden of proof at trial, it must support its motion with
credible evidence that would entitle it to a directed verdict if not controverted at trial. Four
Parcels, 941 F.2d at 1438. “In other words, the moving party must show that, on all the essential
elements of its case on which it bears the burden of proof at trial, no reasonable jury could find
for the nonmoving party.” Id.
Once the moving party has met its initial burden, the nonmoving party must “go beyond
the pleadings” and refer the court to evidence demonstrating that there is a genuine issue for trial.
Celotex Corp., 477 U.S. at 324. In its review of the evidence, a court must credit the evidence of
the non-movant and draw all justifiable inferences in the non-movant’s favor. Stewart v. Booker
T. Washington Ins., 232 F.3d 844, 848 (11th Cir. 2000). At summary judgment, “the judge’s
function is not himself to weigh the evidence and determine the truth of the matter but to
determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 249 (1986).
The fact that each party has filed a motion for summary judgment does not alter the Rule
56 standards applicable to each one. “Cross-motions for summary judgment will not, in
themselves, warrant the court in granting summary judgment unless one of the parties is entitled
to judgment as a matter of law on facts that are not genuinely disputed.” United States v. Oakley,
9

744 F.2d 1553, 1555 (11th Cir. 1984) (citation omitted); see also Busby v. JRHBW Realty, Inc.
d/b/a RealtySouth, 642 F. Supp. 2d 1283, 1289 (N.D. Ala. 2009) (“The fact that both parties
simultaneously are arguing that there is no genuine issue of fact, however, does not establish that
a trial is unnecessary thereby empowering the court to enter judgment as it sees fit,” citing
Wright, Miller & Kane, Federal Practice and Procedure § 2720, at 327-28 (3d ed. 1998)).
“When both parties move for summary judgment, the court must evaluate each motion on its own
merits, resolving all reasonable inferences against the party whose motion is under
consideration.” Muzzy Products, Corp. v. Sullivan Indus., Inc., 194 F. Supp. 2d 1360, 1378
(N.D. Ga. 2002) (quoting Gart v. Logitech, Inc., 254 F.3d 1334, 1338-39 (Fed. Cir. 2001)).
III.

DISCUSSION
In support of its motion for summary judgment, State Farm argues that it has no duty to

either defend or indemnify Camp’s in the underlying action. First, State Farm asserts that, to the
extent Camp’s relies upon the IMCPF, that document cannot be read to provide for a defense or
indemnity for legal claims brought against the insured by a third party for damage stemming
from lost or compromised electronic data. That is so because the IMCPF, State Farm contends,
is a “first-party insuring agreement,” meaning that it covers losses sustained directly by the
insured itself. As such, State Farm insists, the IMCPF is not a “third-party insuring agreement”
that may afford a defense and indemnity where the insured is sued to redress a loss suffered by
another party, which is what Camp’s has demanded. On the other hand, State Farm
acknowledges that Coverage L for “Business Liability” in Section II of the Policy does contain a
third-party insuring agreement. State Farm maintains, however, that for Coverage L to apply, the
third party’s claim for damages must be based on allegations that the insured’s misconduct
10

caused the third party to suffer “bodily injury,” “property damage,” or “personal and advertising
injury,” as those terms are defined in the Policy. And the Credit Unions’ claims in underlying
suit, State Farm says, do not qualify. For the reasons explained below, the court agrees with
State Farm.
The Alabama Supreme Court4 has recognized as follows with regard to the distinction
between first-party insurance coverage and third-party coverage, as follows:
“Insurance contracts generally are assigned to one of two classes: either
‘first-party coverage’ or ‘third-party coverage’.... ‘First-party coverage’ pertains to
loss or damage sustained by an insured to its property; the insured receives the
proceeds when the damage occurs.... In contrast, if the insurer’s duty to defend
and pay runs to a third-party claimant who is paid according to a judgment or
settlement against the insured, then the insurance is classified as ‘third-party
insurance’ .... Thus, wholly different interests are protected by first-party coverage
and third-party coverage.
“... The interests protected ... involve property, not persons. Indeed, the goal of
first-party property coverage, including fire, builder’s risk and installation risk, is
to reimburse the insured for the insured’s actual property loss, dollar for dollar,
but no more.
Colony Ins. Co. v. Georgia-Pac., LLC, 27 So. 3d 1210, 1214-15 (Ala. 2009) (quoting Great
Northern Ins. Co. v. Mount Vernon Fire Ins. Co., 708 N.E.2d 167, 170-71 (N.Y. 1999)); see also
Aetna Cas. & Sur. Ins. Co. v. State ex rel. Eagerton, 414 So. 2d 455, 457 (Ala. 1982) (“[F]irst
party claims are those by a policyholder for damage to his property. Third party claims are those
of a person contending that a policyholder is liable to him for damage to him.”); Toffel v.
Nationwide Mut. Ins. Co., No. 2:15-cv-01669-KOB, 2016 WL 4271837, at *7 n. 3 (N.D. Ala.

4

Sitting in diversity, this court is bound to apply Alabama substantive law, while applying federal
procedural law. See Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); Palm Beach Golf CenterBoca, Inc. v. John G. Sarris, DDS, PA, 781 F.3d 1245, 1259-60 (11th Cir. 2015).
11

Aug. 15, 2016) (“‘First-party’ insurance claims involve personal or property insurance,” while
“‘[t]hird-party ... claims involve liability insurance”).
To establish that State Farm owes a defense and indemnity, Camp’s relies primarily upon
the Inland Marine endorsements. (See Doc. 1 ¶¶ 16, 17; Doc. 1-2). However, there is no
language in either the IMCPF or the IMC whereby State Farm promises to “defend” or
“indemnify” the insured, whether in regard to claims involving computer equipment, electronic
data, or anything else, for that matter. Rather, the general insuring agreement of the IMCPF
provides: “[W]e will pay for accidental direct physical loss to ... 1. Computer equipment [and] 2.
Removable data storage media.” (Doc. 11-3 at 43 (emphasis added)). Similarly, the “Extensions
of Coverage” in the IMCPF states: “We will pay for accidental direct loss to ... (1). ... (a)
‘Computer programs used in your business operations; (b) The ‘electronic data’ that exists in
‘computer’ memory or on ‘computer’ storage media, used in your business operations; (2) That
portion of your customer’ ‘electronic data’ that is supplied to you for processing or other use in
your business operations.” (Id. at 44 (emphasis added)). Such promises to pay the insured’s
“direct loss” unambiguously afford first-party coverage only and do not impose a duty to defend
or indemnify the insured against legal claims for harm allegedly suffered by others, as in thirdparty coverage. See RVST Holdings, LLC v. Main St. Am. Assur. Co., 136 A.D.3d 1196, 1198,
25 N.Y.S.3d 712, 714 (N.Y. App. Div. 2016); Butler v. Clarendon Am. Ins. Co., 494 F. Supp. 2d
1112, 1129 (N.D. Cal. 2007), aff’d, 317 F. App’x 648 (9th Cir. 2009); Power Eng’g Co. v. Royal
Ins. Co. of Amer., 105 F. Supp. 2d 1196, 1207 (D. Colo. 2000); Shell Oil Co. v. Winterthur Swiss
Ins. Co., 12 Cal. App. 4th 715, 765, 15 Cal. Rptr. 2d 815, 848 (1993), reh’g denied and opinion
modified (Feb. 22, 1993); Edward J. Gerrits, Inc. v. National Union Fire Ins. Co. of Pittsburgh,
12

Penn., 634 So. 2d 712, 713 (Fla. Dist. Ct. App. 1994). Therefore, the terms of the IMCPF itself
impose no obligation on State Farm to either defend or indemnify Camp’s in the underlying
action.
Camp’s highlights, however, that the IMC provides that, in the event of a covered loss,
“[State Farm] may elect to defend [the insured], at [State Farm’s] expense, against suits arising
from claims of owners of property.” (Doc. 11-3 at 40, ¶ 4(d)). Camp’s reads such language to
mean that State Farm has assumed a duty to defend the insured. The court disagrees. On its face,
a policy provision that the insurer “may elect to defend” an insured unambiguously gives the
insurer a discretionary choice or right to defend; it does not create a duty, that is a
nondiscretionary legal obligation, to do so. See Omega Demolition Corp. v. Travelers Prop.
Cas. of Am., No. 14-CV-01288, 2015 WL 3857341, at *4 (N.D. Ill. June 19, 2015); Genaeya
Corp. v. Harco Nat’l Ins. Co., 991 A.2d 342, 349 (Pa. Super. Ct. 2010); Stadium LincolnMercury, Inc. v. Heritage Transport, 826 N.E.2d 332, 337 (Ohio Ct. App. 2005); Nourishad v.
SCPIE Indem. Co., No. G035218, 2006 WL 1015756, at *11 (Cal. Ct. App. Apr. 19, 2006); see
also Stephen E. Goldman & John W. Steinmetz, Property Insurers’ Rights and Obligations Under
Policy Provisions That Provide Coverage for Personal Property of Others, 32 Tort & Ins. L.J.
787, 798 (1997) (“[T]he ISO Businessowners Standard Property Coverage Form provides that
the insurer ‘may elect to defend [its insured] against suits arising from claims of owners of
property.’ Under the law of most states, this language does not create an obligation to defend; it
merely gives the insurer the right to defend actions filed against its insureds.”).
Camp’s replies that the IMC language providing that State Farm “may elect to defend” is
nonetheless ambiguous in light of other provisions of the Policy. (See Doc. 12 at 11-13). More
13

specifically, Camp’s seems to claim that, even if the Inland Marine endorsements themselves do
not create or acknowledge a duty to defend, it is undisputed that Coverage L in Section II of the
Policy provides liability insurance under which State Farm has assumed a duty to defend and
indemnify. According to Camp’s, the Inland Marine endorsements expand the scope of liability
insurance under Coverage L such that State Farm must render a defense and indemnity for claims
based on losses involving computers and electronic data. Again, the court disagrees.
It is true that Coverage L supplies business liability insurance by which State Farm has
assumed a duty to defend and indemnify Camp’s against certain enumerated legal claims.
However, as State Farm argues, Coverage L does not apply to any of the claims in the underlying
suit. Coverage L’s is triggered where the insured becomes legally obligated to pay damages
because of “bodily injury,” “property damage,” or “personal and advertising injury.” (Doc. 11-3
at 76, Coverage L - Business Liability ¶ 1). The underlying suit is brought by incorporated
entities who claim purely economic loss as a result of alleged cyber attacks on Camp’s computer
network that compromised the security of electronic data, specifically, the debit and credit card
information of their shared customers. Although State Farm clearly raises arguments that the
underlying action does not involve either “bodily injury” or “personal and advertising injury”
(Doc. 11 at 16, 20-22), Camp’s does not respond to those arguments in its summary judgment
brief. Accordingly, Camp’s has abandoned those theories as a basis of recovery.5 See Iraola &
CIA, S.A. v. Kimberly-Clark Corp., 325 F.3d 1274, 1284-85 (11th Cir. 2003); Resolution Trust

5

Even absent abandonment, the court would find that the underlying action does not allege
“bodily injury” or “personal or advertising injury” for the reasons stated in State Farm’s brief.
(See Doc. 11 at 16, 20-22).
14

Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir. 1995); Road Sprinkler Fitters Local Union
No. 669 v. Independent Sprinkler Corp., 10 F.3d 1563, 1568 (11th Cir. 1994).
Camp’s does argue, however, that the underlying suit seeks damages for “property
damage,” insofar as the Credit Unions allege that they suffered “losses for replacement customer
debit and credit cards.” (Doc. 12 at 9 (internal quotation marks omitted); see also Doc. 1-1 at 6,
¶ 8 (“Plaintiffs have incurred significant losses associated with credit and debit card reissuance”);
id. at 11, ¶ 36 (“Plaintiffs had to protect their customers and avoid fraud losses; Cards they had
issued, and reissue Cards with new account numbers and magnetic stripe information to
customers.”); id. ¶ 37 (“The cancellation and reissuance of cards resulted in damages and losses
to Plaintiffs.”). Camp’s acknowledges that, for purposes of Coverage L, “property damage” is
limited to “tangible property” and that “electronic data is not tangible property.” (See Doc. 11-3
at 89, ¶ 21). Camp’s suggests, however, that, since “the physical debit cards are not only
‘electronic data,’ but are [also] tangible property that can be touched and handled,” (Doc. 12 at
9), the Credit Unions’ claimed losses connected with replacing the cards is covered “property
damage.”
But even if credit and debit cards are tangible property, Camp’s argument is fatally
flawed. The Credit Unions do not assert that Camp’s acts or omissions caused physical harm or
damage to any cards as tangible property. Rather, the Credit Unions assert that Camp’s lax
computer network security allowed the intangible electronic data contained on the cards to be
compromised such that the magnetically encoded card numbers could no longer be used, causing
purely economic loss flowing from the need to issue replacement cards with new electronic data.
Moreover, Coverage L is subject to an exclusion for “damages arising out of the loss of, loss of
15

use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.”
(Id. at 81-82, Section II - Exclusions ¶ 18). As a result, the Credit Unions’ claims for damages
arising out of Camp’s allegedly unlawful handling of electronic data on the credit cards are not
claims for “property damage” under the Policy and are excluded from coverage. See RVST
Holdings, 136 A.D.3d at 1198, 25 N.Y.S.3d at 714; see also American States Ins. Co. v. Martin,
662 So. 2d 245, 249 (Ala. 1995) (insureds’ purely economic loss was not covered as “property
damage” under liability policy); Carole Basri, Mary Mack, eDiscovery for Corporate Counsel §
17:7 (“[C]ase law reveals that organizations may have a difficult time obtaining coverage under a
CGL policy for claims arising from a cyber-breach.”).
Nor do the provisions of Coverage L render the Inland Marine Endorsements ambiguous
as it relates to a duty to defend. In essence, Camp’s agues that, even if neither Coverage L nor
the Inland Marine endorsements by their own terms apply to the Credit Unions’ claims in the
underlying action, if one takes the duty to defend from the third-party coverage of former and the
first-party coverage for electronic data loss from the latter, read together they form an
amalgamation providing liability insurance against claims for electronic data loss. That,
however, is simply not what the Policy provides. Camp’s suggests that it is merely interpreting
the different coverages of the Policy as an integrated whole. But what Camp’s is actually doing
is selectively reading the Policy in a piecemeal fashion, picking and choosing parts of different
coverages while conveniently ignoring other terms from those same coverages that would
preclude or exclude their application to the Credit Unions’ claims. Moreover, it is clear that,
contrary to Camp’s assertion, the provisions of the Inland Marine endorsements stand distinctly

16

separate and apart from the business liability insurance afforded by Coverage L and do not
expand it. Rather,
the [Inland Marine] Endorsement[s] act[ ] as a sort of “mini-policy.” Like the
Policy itself, the Endorsement[s] set[ ] forth an insuring agreement complete with
its own definitions, detailed conditions, and deductible. The Endorsement[s] even
ha[ve] something to say about exclusions. As we have seen, [they] specif[y] that
certain existing exclusions do not apply to the Endorsement[s’] coverage, it
modifies other exclusions, and it adds still others that are only applicable to the
Endorsement[s].
AJC Int’l, Inc. v. Triple-S Propiedad, 790 F.3d 1, 9 (1st Cir. 2015). In the end, the Inland Marine
endorsements afford only first-party coverage for certain computer equipment and electronic
data, as specified in the IMCPF. Those endorsements do not create, recognize, or assume the
existence of a duty to defend or indemnify against claims brought by third parties. As such, the
Inland Marine endorsements are properly read as expanding or otherwise modifying not the thirdparty liability insurance of Coverage L in Section II of the Policy but rather the first-party
property insurance of Section I, which, like the IMCPF, contains promises by State Farm to pay
the insured’s “direct loss” to enumerated property. (See Doc. 11-3 at 56 (“[W]e will pay for
accidental direct physical loss to ... Covered Property”)). The court concludes that the language
of the Policy is unambiguous and does not impose a duty on State Farm to defend or indemnify
Camp’s in the underlying action.6

6

Plaintiff cites American Safety Indemn. Co. v. National Union Fire Ins. Co. of Pittsburgh, 759
F. Supp. 2d 1218 (S.D. Cal. 2011), and Flowers v. Max Specialty Ins. Co., 761 S.E.2d 787 (W.
Va. 2014), to support that the Policy is at least ambiguous as to State Farm’s duty to defend.
(Doc. 12 at 11-13). Both cases, however, are distinguishable. In American Safety, the district
court held that language in an endorsement that the insurer had “the right but not the duty to
defend” the insured was “plain” and did not itself impose an obligation to defend. 759 F. Supp.
2d at 1221-22. Despite that, the court found that the policy, read as a whole, was ambiguous
because a different policy endorsement that also potentially applied to the claims at issue
17

IV.

CONCLUSION
Based on the foregoing, State Farm’s motion for summary judgment (doc. 11) is due to be

GRANTED, while Camp’s cross-motion for summary judgment (doc. 12) is due to be DENIED.
A separate final order will be entered.
DONE, this 25th day of October, 2016.

___________________________
JOHN E. OTT
Chief United States Magistrate Judge

contained language that, on its face, “assume[d] the existence of a duty to defend.” Id. at 1222.
And under state law, that ambiguity had to be read against the insurer that issued the policy. Id.
at 1222-23. But as discussed in the text, the Inland Marine endorsements here neither create nor
acknowledge a duty to defend. More importantly, unlike in American Safety, the “other” portion
of the Policy that purportedly engenders ambiguity, Coverage L, cannot be reasonably interpreted
to apply to the claims in the underlying action, nor can the first-party insurance of the Inland
Marine endorsements be read to expand or modify the third-party liability insurance of Coverage
L.
Flowers also does not aid Camp’s cause. There the issue was whether a general
commercial liability (GCL) policy permitted the insurer to terminate its duty to defend at such
time as the policy limit of $25,000 is exhausted through the expenditure of attorney’s fees and
costs. See 761 S.E.2d at 792. Ultimately, the court determined that the provisions in the “GCL
coverage and [a] supplementary payments parts of the policy ... regarding the duty to defend”
were “contradictory to [an] endorsement” and that such “contradictory and confusing provisions
creat[ed] significant ambiguity in the entire policy.” Id. at 796. Construing such ambiguity in
favor of the insured, the court held that the policy did not allow the insurer to terminate its duty
to defend through expenditure of policy limits on attorney’s fees and costs. Id. But again, in the
case sub judice, there simply are not “contradictory” provisions as it might relate to State Farm’s
duty to defend the claims in the underlying action. To the contrary it is clear that State Farm has
no duty to defend either under the Inland Marine endorsements, which afford only first-party
coverage, or under the business liability provisions of Coverage L, which do not reach or
otherwise exclude coverage for the Credit Unions’ claims based on allegedly deficient cybersecurity.
18