American Economy Insurance Company et al v. Aspen Way Enterprises, Inc. et al

Filing 88

OPINION AND ORDER, IT IS HEREBY ORDERED Liberty Mutual's 60 MOTION for Summary Judgment is GRANTED. Apen Way's 84 MOTION to Strike is DENIED AS MOOT. Liberty Mutual shall filed a brief within 14 days indicating whether it seeks an order requiring reimbursement of its already expended costs as requested in the Complaint. Liberty Mutual must state legal authority for its claim. Aspen Way may file a response in opposition to Liberty Mutual's position within 14 days of Liberty Mutual's opening brief. Signed by Judge Susan P. Watters on 9/24/2015. (EMH, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
AMERICAN ECONOMY INSURANCE
COMPANY, an Indiana corporation;
AMERICAN STATES INSURANCE
COMPANY, an Indiana corporation; and
GENERAL INSURANCE COMPANY
OF AMERICA, a New Hampshire
corporation,
Plaintiffs,
vs.
ASPEN WAY ENTERPRISES, INC.,
d/b/a Aaron's Sales and Leasing, a
Montana corporation; and HARTFORD
FIRE INSURANCE COMPANY, a
Connecticut corporation,
Defendants.
HARTFORD FIRE INSURANCE
COMPANY,
Counterclaimant and Crossclaim Plaintiff,
vs.
AMERICAN ECONOMY INSURANCE
COMPANY; AMERICAN STATES
INSURANCE COMPANY; GENERAL
INSURANCE COMPANY OF
AMERICAN; and ASPEN WAY
ENTERPRISES, INC.,
Counterclaim and Crossclaim Defendants.

1

FILED
SEP 2 5 2015
Clerk, U.S District Court
District Of Montana

CV 14-09-BLG-SPW

OPINION and ORDER

Billings

ASPEN WAY ENTERPRISES, INC., d/b/a
Aaron's Sales and Leasing,
Cross-Claimant,
vs.
HARTFORD FIRE INSURANCE
COMPANY,
Cross-Defendant.

HARTFORD CASUALTY INSURANCE
COMPANY,
Intervenor-Plaintiff,
vs.
AMERICAN ECONOMY INSURANCE
COMPANY; AMERICAN STATES
INSURANCE COMPANY; GENERAL
INSURANCE COMPANY OF
AMERICAN; and ASPEN WAY
ENTERPRISES, INC.,
Defendants to Intervenor Complaint.

Before the Court is the Motion for Summary Judgment filed by American
Economy Insurance Company ("American Economy"), American States Insurance
Company ("American States"), and General Insurance Company of America
("General Insurance") (collectively "Liberty Mutual"). Liberty Mutual seeks a

2

declaration that it does not owe Aspen Way Enterprises ("Aspen Way") a duty to
defend in two underlying actions. For reasons discussed below, the Court finds
that according to the relevant insurance policies, Liberty Mutual is not required to
defend Aspen Way in the underlying actions and grants the Motion for Summary
Judgment.

I. Background
Aspen Way is a franchisee of Aaron's Inc. and operates rent-to-own stores in
at least Montana, Washington, and Wyoming. Relevant here, Aspen Way is
defending two separate underlying actions related to its installation of software
called PC Rental Agent onto computers sold or rented to customers. (Doc. 33 at 34).
A. The Byrd Action
In May 2011, Crystal and Brian Byrd, individually and on behalf of a class
consisting of Aaron's and its franchisees' customers, sued Aspen Way, Aaron's,
and other Aaron's franchisees in the United States District Court for the Western
District of Pennsylvania (the "Byrd Action"). (Id. at 3). The Byrds allege that on
July 30, 2010, they entered into a lease agreement for a laptop computer from
Aspen Way. (Doc. 62-3 at 25). On December 22, 2010, an Aspen Way store
manager erroneously believed that the Byrds were delinquent in their lease
payments and appeared at the Byrds' residence to repossess the computer. (Id. at
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27). The store manager showed Brian Byrd a picture taken with the computer's
webcam that showed him using the computer. (Id.). The Byrds asked the store
manager to leave the residence and reported the incident to law enforcement. (Id.).
The Byrds later found out that Aspen Way took the picture using PC Rental
Agent. (Id.). PC Rental Agent is a software product designed by a company
named DesignerWare. (Id. at 17). Once installed on a computer, PC Rental Agent
is generally undetectable by consumers. (Id. at 18). The installer can remotely
install "Detective Mode" on the computer over the internet while it is in the
consumer's possession. (Id.).
Once Detective Mode has been installed, the installer can secretly take
photographs with the computer's webcam, capture keystrokes, and take screen
shots. (Id.). Detective Mode transmits the gathered data to DesignerWare. (Id. at
19). DesignerWare then emails the data to the installer that activated Detective
Mode. (Id.).
The Byrds allege that Aaron's franchisees have used PC Rental Agent since
at least June 2009. (Id. at 17). The Byrds claim that the franchisees received
private and confidential data after activating Detective Mode on their customers'
computers. (Id. at 17-18). Such private data included private emails, keystroke
logs for usemames and passwords, bank and credit card statements, Social Security
numbers, and webcam photos of individuals in various states of undress. (Id.).
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Aaron's franchisees could remotely install and activate Detective Mode through
Aaron's corporate server. (Id. at 21). Aaron's franchisees would also access the
acquired data from Aaron's corporate server. (Id.).
The Byrds claim that Aspen Way accessed their computer via Detective
Mode on about 34 7 occasions. (Id. at 26). While Detective Mode is no longer
operational on the Byrds' computer, the Byrds allege that information obtained by
Aspen Way "has been repeatedly transmitted via unencrypted email and forwarded
to unknown persons and locations." (Id. at 29). In all, the Byrds claim that more
than 800 customers had private information transmitted to Aaron's franchisees.

(Id. at 30). The Byrds allege these customers "continue to suffer harm or potential
harm," as their information "may have been possibly transmitted to other third
parties thereby placing them at an increased risk of fraud and identity theft[.]" (Id.
at 24). Aaron's franchisees stopped using PC Rental Agent in January 2012. (Id.
at 30). Even after ceasing to use PC Rental Agent, the Byrds claim that
"franchisee employees and other unknown individuals continue to possess and
potentially spread" private information obtained by the software. (Id. at 33).
In their Corrected Third Amended Class Action Complaint, the Byrds
brought four causes of action against Aaron's and numerous franchisees, including
Aspen Way. Count I alleges a violation of the Electronic Communications Privacy
Act, 18 U.S.C. § 2511 ("ECPA"). The Byrds claim that the defendants violated the
5

ECPA by "intentionally collecting, transmitting, storing and disclosing, or
endeavoring to disclose, to any other person," the contents of the private data
collected by PC Rental Agent. (Id. at 34). Count II alleged a tort named Invasion
of Privacy, Count III alleged a conspiracy to violate the ECPA, and Count IV
alleged that Aaron's aided and abetted the invasion of privacy. (Id. at 35-40).
On March 31, 2014, the District Court granted in part and denied in part
Aaron's Motion to Dismiss for Failure to State a Claim. Byrd v. Aaron's, Inc., 14
F. Supp. 3d 667, 674 (W.D. Pa. 2014). The Court held that the Byrds sufficiently
pled a claim for liability under the ECPA as to Count I. Id. at 675. The Court
dismissed Counts II, III, and IV. Id. at 674. As to Count II, the Court adopted a
Magistrate Judge's Report and Recommendation that concluded that Wyoming law
does not have a tort cause of action for invasion of privacy. Id. at 692-93. As to
Count III, the Court held that the ECPA does not allow for secondary liability. Id.
at 674-75. The Byrds apparently conceded that they could not maintain a cause of
action for Count IV. Id. at 694. Accordingly, the ECPA claim in Count I is "the
only remaining claim." Id. at 675.
The Court also denied Aspen Way's Motion to Dismiss for Lack of Personal
Jurisdiction. Id. at 675-76. In a separate order on March 31, 2014, the Court
denied the Byrds' motion for class certification. Byrd v. Aaron's, Inc., 2014 WL
1316055, at *1 (W.D. Pa. Mar. 31, 2014). On April 16, 2015, the Third Circuit
6

reversed the denial of class certification. Byrd v. Aaron's Inc., 784 F .3 d 154, 160
(3d Cir. 2015). Since the District Court received the Third Circuit's mandate, there
apparently has been a discovery dispute but there is no scheduling order in place.

See Minute Entries (Docs. 371, 374, 377, 381), Byrd v. Aaron's Inc., Civil Action
No. 1:11-101-CB-SPB (W.D. Pa. May 26, June 24, July 29, and August 25, 2015).
In May 2011, Aspen Way demanded coverage from Liberty Mutual for the
Byrd Action. Liberty Mutual agreed to defend Aspen Way, but did so under a
complete reservation of rights. (Doc. 62-30). In particular, Liberty Mutual
reserved the right to institute a declaratory judgment action and withdraw its
defense at any point. (Id. at 8-9).

B. The Washington Action
On October 18, 2013, the State of Washington sued Aspen Way in Spokane
County Superior Court, Washington ("Washington Action"). (Doc. 33 at 4). In
the Complaint for Injunctive and Other Relief, the State claimed that Aspen Way
installed PC Rental Agent and Detective Mode without adequate notice to
customers. (Doc. 62-7 at 4 ). The State also made allegations similar to the Byrd
Action regarding PC Rental Agent and Detective Mode's capabilities. (Id.). The
State alleged that Detective Mode relayed private information via email to Aspen
Way stores located in Washington without any customer knowledge. (Id.).

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The State's Complaint contained four causes of action. Count 1 alleged that
Aspen Way made material misrepresentations to its customers by failing to alert
them to the presence or capabilities of Detective Mode in violation of
Washington's Consumer Protection Act, RCW 19.86.020. (Id. at 5). Count 2
alleged that Aspen Way collected their customers' private information in violation
of Washington's Computer Spyware Act, RCW 19.270.020. (Id. at 6). Count 3
alleged that Aspen Way violated the Computer Spyware Act by failing to provide
to its customers the ability to decline the installation of Detective Mode. (Id. at 8).
Finally, Count 4 alleged that Aspen Way violated the Consumer Protection Act by
unfairly collecting their customers' private information and pictures. (Id. at 9).
Although Count 4 is titled "Unfair Collection and Disclosure of Private and
Confidential Information," the State did not allege there was any disclosure.
Instead, the State alleges that it was the "unfair gathering of extremely private
information" that caused injury to the consumers. (Id.).
On February 4, 2015, the State and Aspen Way entered into a Consent
Decree. (Doc. 62-8). Aspen Way did not admit to the alleged violations of
Washington law, but Aspen Way agreed to an injunction against installing
software similar PC Rental Agent and Detective Mode. (Id. at 5-7). Violating the
injunction could cost Aspen Way as much as $25,000 per violation. (Id. at 7).

8

Aspen Way also agreed to pay $150,000 to the State to cover the costs of
instituting the Washington Action and for monitoring and enforcing the Consent
Decree. (Id.). Liberty Mutual paid the $150,000 to the State on behalf of Aspen
Way, but noted that the payment did not constitute an admission or waiver
regarding this declaratory judgment action. (Doc. 62-34 at 2). Liberty Mutual
reserved the right to seek recoupment of the settlement payment from Aspen Way
upon a declaration of non-coverage. (Id.).

C. Liberty Mutual's Policies
Aspen Way had a total of six policies with Liberty Mutual that are
implicated by the Byrd and Washington Actions. These consisted of three primary
policies and three umbrella policies.
The primary policies were issued by General Insurance in 2010 (Docs. 62-9
through 19) and by American Economy in 2011 (Docs. 62-20 and 21) and 2012
(Docs. 62-22 through 26). The primary policies provide for two coverages:
Coverage A and Coverage B. Aspen Way's Coverage A liability provision is
triggered when allegations of "bodily injury" or "property damage" are made.
(Doc. 62-13 at 14). Aspen Way's Coverage B liability provision is triggered when
allegations of "personal and advertising injury" are made. (Id. at 19). The
definitions section provides:

9

14. "Personal and advertising injury" means injury, including
consequential "bodily injury", arising out of one or more of the
following offenses:
.. .d. Oral or written publication, in any manner, of material that
violates a person's right of privacy[.]

(Id. at 28).
In an endorsement that modified some policy language, the primary policies
contain an exclusion entitled the "Recording and Distribution of Material or
Information in Violation of Law Exclusion" ("Recording and Distribution
Exclusion"). (Id. at 31 ). The Recording and Distribution Exclusion applies to both
Coverages A and B. (Id.). In relation to Coverage B, it provides:
2. Exclusions

This insurance does not apply to:
p. Recording and Distribution of Material Or Information
In Violation of Law

"Personal and advertising injury" arising directly or
indirectly out of any action or omission that violates or is
alleged to violate:
... ( 4) Any federal, state or local statute, ordinance or
regulation, other than the TCPA, CAN-SPAM Act of
2003 or FCRA and their amendments and additions, that
addresses, prohibits, or limits the printing, dissemination,
disposal, collecting, recording, sending, transmitting,
communicating or distribution of material or information.

(Id.).

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In addition to the three primary policies, American States issued umbrella
policies to Aspen Way in 2010 ("2010 Umbrella Policy") (Doc. 62-27), 2011
("2011 Umbrella Policy") (Doc. 62-28), and 2012 ("2012 Umbrella Policy") (Doc.
62-29). The umbrella policies provide liability coverage to Aspen Way for
allegations of "bodily injury," "property damage," "personal injury," or
"advertising injury." (See Doc. 62-27 at 28). The umbrella policies provide
coverage for amounts in excess of the amount other insurance would pay. (Id. at
34-35).
All three umbrella policies have the Recording and Distribution Exclusion.
However, the 2010 and 2011 Umbrella Policies contain what Liberty Mutual
argues is a clerical error. Under the Recording and Distribution Exclusion in the
2010 and 2011 Umbrella Policies, the insurance does not apply to "bodily injury,"
"property damage," "personal injury," or "advertising injury:"
[A]rising directly or indirectly out of any action or omission that
violates or is alleged to violate:
... d. Any federal, state or local statute, ordinance or regulation, other
than the TCPA or CAN-SPAM Act of2003, or FCRA and their
amendments and additions, that collection, recording, sending,
transmitting, communicating, or distribution of material or
information.
(Id. at 22; Doc. 62-28 at 16). It is nearly identical to the Recording and

Distribution Exclusions contained in the primary polices, with one notable
exception. Between " ... FCRA and their amendments and additions ... " and " ... the
11

printing, dissemination ... ," the primary policies contain the verbs "that addresses,
prohibits, or limits." (Doc. 62-13 at 31). However, the 2010 and 2011 Umbrella
Policies lack any verb between " ... FCRA and their amendments and additions ... "
and " ... that collection, recording ... " (Doc. 62-27 at 22; Doc. 62-28 at 16).
Without those verbs, that subsection of the Recording and Distribution Exclusion
in the 2010 and 2011 Umbrella Policies is an incomplete sentence that does not
make sense.
Included with the 2010 and 2011 Umbrella Policies was a "Notice to
Policyholders." (Doc. 62-27 at 24; Doc. 62-28 at 18). The Notice explained the
Recording and Distribution Exclusion and stated that it was intended to "more
explicitly exclude liability coverage for ... injury arising out of any action or
omission that violates, or is alleged to violate ... federal, state or local statute,
ordinance or regulation concerning disposal and dissemination of personal
information." (Id.). The Notice explicitly stated that it was not part of the policy
and that the policy provisions trumped any conflict they may have with the Notice.
(Id.). Aspen Way claims to have had no knowledge of the alleged typographical

errors in the Recording and Distribution Exclusions contained in the 2010 and
2011 Umbrella Policies. (Doc. 75-1 at 4).
The 2012 Umbrella Policy had a Recording and Distribution Exclusion that
mirrored the ones contained in the primary policies with verbs in the appropriate
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place. The Recording and Distribution Exclusion in the 2012 Umbrella Policy
excluded coverage from any injury:
[A]rising directly or indirectly out of an action or omission that
violates or is alleged to violate:
.. .d. Any federal, state, or local statute, ordinance, or

regulation ... that addresses, prohibits, or limits the printing
dissemination, disposal, collecting, recording, sending,
transmitting, communicating or distribution of material or
information.
(Doc. 62-29 at 24 with emphasis added to reflect the additional verbiage). The
same "Notice to Policyholders" was included with the 2012 Umbrella Policy. The
Notice also explained that the Recording and Distribution Exclusion in the 2012
Umbrella Policy "adds language that was mistakenly omitted in the original
version." (Doc. 62-29 at 8).
D. The Instant Action
Liberty Mutual initiated this action against Aspen Way and Hartford Fire
Insurance Company on January 22, 2014. (Doc. 1). Liberty Mutual seeks a
declaratory judgment that it does not owe Aspen Way a duty to defend in the Byrd
Action and did not owe a duty to defend in the Washington Action. (Id. at 31-33).
Liberty Mutual also wants an order directing Aspen Way to reimburse General
Insurance and American Economy for sums already spent defending the Byrd and
Washington Actions under the primary policies. (Id. at 32). Finally, Liberty
Mutual wants reformation of the Recording and Distribution Exclusions in the
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2010 and 2011 Umbrella Policies to match the language of the same exclusion in
the 2012 Umbrella Policy and the primary policies. (Id. at 34-38). Liberty Mutual
did not state a cause of action against Hartford Fire Insurance Company, and the
Court later realigned the parties for jurisdictional purposes. (See Doc. 49).
Aspen Way answered and filed a counterclaim against Liberty Mutual.
Aspen Way's counterclaim asserts two causes of action against Liberty Mutual: (1)
Violation of the Unfair Trade Practices Act ("UTPA"); and (2) Breach of contract.
(Doc. 12 at 25-28).
Liberty Mutual now moves for summary judgment against Aspen Way and
asserts that the facts alleged in the Byrd and Washington Actions do not entitle
Aspen Way to coverage. First, Liberty Mutual argues that coverage is not
triggered, as neither action alleges "personal or advertising injury." Second,
Liberty Mutual argues that even if there were allegations of "personal or
advertising injury," coverage is precluded by the Recording and Distribution
Exclusions. 1 Finally, Liberty Mutual argues that Aspen Way's counterclaims fail
as a matter oflaw.
Aspen Way opposes the motion and advances several arguments. First,
Aspen Way argues that coverage is triggered by allegations of "bodily injury" and

1

Liberty Mutual also argues that the Intentional Acts Exclusion bars coverage.
The Court does not reach that issue, and the Intentional Acts Exclusion is not
reproduced or discussed in this Order.
14

"personal and advertising injury." Aspen Way also argues the Recording and
Distribution Exclusions do not apply for reasons that will be discussed later.
Finally, Aspen Way argues that its UTPA claim is a jury question.

II. Standards
A. Summary Judgment Standard
Summary judgment is proper when "the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine issue
as to any material fact and that the movant is entitled to judgment as a matter of
law." Fed.R.Civ.P. 56(c). An issue is "genuine" only ifthere is a sufficient
evidentiary basis on which a reasonable fact finder could find for the nonmoving
party and a dispute is "material" only if it could affect the outcome of the suit
under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986).
The party moving for summary judgment has the initial burden of showing
the absence of a genuine issue of material fact. Anderson, 477 U.S. at 256-57.
Once the moving party has done so, the burden shifts to the opposing party to set
forth specific facts showing there is a genuine issue for trial. In re Barboza, 545
F .3d 702, 707 (9th Cir.2008). The nonmoving party "may not rely on denials in
the pleadings but must produce specific evidence, through affidavits or admissible
discovery material, to show that the dispute exists." Id.
15

On summary judgment, the evidence must be viewed in the light most
favorable to the non-moving party. Id. The court should not weigh the evidence
and determine the truth of the matter, but determine whether there is a genuine
issue for trial. Anderson, 477 U.S. at 249.

B. Duty to Defend Standard
Under Montana law, an insurer's "duty to defend is independent from and
broader than the duty to indemnify created by the same insurance contract."

Farmers Union Mut. Ins. Co. v. Staples, 90 P.3d 381, 385 (Mont. 2004). The duty
to defend "arises when a complaint alleges facts which represent a risk covered by
the terms of an insurance policy." Blair v. Mid-Continent Cas. Co., 167 P.3d 888,
891 (Mont. 2007). An insurer must also defend its insured if it knows facts not
contained in the complaint which may give rise to coverage. Revelation Indus.,

Inc. v. St. Paul Fire & Marine Ins. Co., 206 P.3d 919, 928 (Mont. 2009).
"Unless there exists an unequivocal demonstration that the claim against an
insured does not fall within the insurance policy's coverage, an insurer has a duty
to defend." Staples, 90 P.3d at 385. In other words, the duty to defend arises when
a complaint alleges or avers facts, which if proven, would result in coverage. Id.
This Court "must liberally construe allegations in a complaint so that all doubts
about the meaning of the allegations are resolved in favor of finding that the
obligation to defend was activated." Id.
16

III. The Byrd Action
The question of whether Liberty Mutual had a duty to defend Aspen Way in
the Byrd Action and the Washington Action requires separate analyses. The Court
will start with the Byrd Action.
A. Whether the Byrd Action alleges "personal and advertising injury"

Liberty Mutual argues that coverage is not triggered in the Byrd Action. At
issue is whether the Byrd Action alleges facts that could have caused "personal and
advertising injury." As discussed above, "personal and advertising injury"
includes "[ o]ral or written publication, in any manner, of material that violates a
person's right of privacy." (Doc. 62-13 at 14). "Publication" is not defined in the
policy. The Court must first define "publication," and then apply that definition to
the allegations in the Byrd Action.
An insurance policy's terms are given their usual and common sense

meaning from the viewpoint of an ordinary consumer. Newbury v. State Farm Fire
& Cas. Ins. Co. ofBloomington, Ill., 184 P.3d 1021, 1025 (Mont. 2008). To

determine a word's usual and commonsense meaning, the Montana Supreme Court
sometimes looks to the word's dictionary definition. See Modroo v. Nationwide
Mut. Fire Ins. Co., 191P.3d389, 396-97 (Mont. 2008); Fisher ex rel. McCartney
v. State Farm Mut. Auto. Ins. Co., 305 P.3d 861, 866 (Mont. 2013); and Portal

Pipe Line Co. v. Stonewall Ins. Co., 845 P.2d 746, 751 (Mont. 1993). Dictionaries

17

-- _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _..J

commonly define "publication" as including disclosure to the public. See

Webster's Third New International Dictionary 1836 (Philip Babcock Gove ed.
1981) (defining "publication," in part, as "communication (as of news or
information) to the public"); New Oxford American Dictionary 1411 (Angus
Stevenson & Christine Lindberg eds., 3rd ed. 2010) ("the action of making
something generally known"); and The American Heritage Dictionary 1424
(Joseph Pickett ed., 5th ed. 2011) ("Communication of information to the public").
Some courts hold that the "public" does not necessarily mean the public-atlarge, but can include a third party. For example, the Eastern District of
Pennsylvania's "dictionary of choice" made "clear that promulgation to the public,
even to a limited number of people, is the essence of publication." OneBeacon

Am. Ins. Co. v. Urban Outfitters, Inc., 21 F. Supp. 3d 426, 437 (E.D. Pa. 2014)
(emphasis in original) (citing XII The Oxford English Dictionary 782 (2nd
ed.1989)). The Supreme Court of Connecticut reasoned that "[c]ommon sense
dictates that a lay person would understand the term 'publication' to mean the
communication of words to a third person." Springdale Donuts, Inc. v. Aetna Cas.
& Sur. Co. ofIllinois, 724 A.2d 1117, 1122 (Conn. 1999). The Eastern District of
Louisiana held that there is personal and advertising injury when there is
"publication to a third party" and the material is "generally known, announced
publicly, disseminated to the public, or released for distribution." Ticknor v.
18

Rouse's Enterprises, LLC, 2 F. Supp. 3d 882, 896 (E.D. La. 2014) (emphasis

added).
This Court adopts a definition of "publication" that includes the
dissemination of information to at least a third party, if not the public-at-large.
This liberal definition of "publication" conforms with Montana's strong policy of
construing insurance policy terms in the insured's favor. Pablo v. Moore, 995 P.2d
460, 463 (Mont. 2000). Viewing the term "publication" from the perspective of a
consumer of average intelligence, this Court concludes that "publication," as used
in Liberty Mutual's definition of "personal and advertising injury," occurs when
information is transmitted to a third party.
The Court further finds that the Byrd Action alleges sufficient facts to
trigger the duty to defend under Liberty Mutual' s Coverage B for "personal and
advertising injury." By liberally construing the Corrected Third Amended Class
Action Complaint, the plaintiffs allege facts that, if proven, would result in
coverage. The Byrds allege that their private information was collected by PC
Rental Agent and "has been repeatedly transmitted via unencrypted email and
forwarded to unknown persons and locations." (Doc. 62-3 at 29). Both the Byrds
and the members of the putative class action allege they suffered injury after their
information "may have been possibly transmitted to other third parties thereby
placing them at an increased risk of fraud and identity theft." (Id. at 24). The
19

Byrds claim that despite Aspen Way's cessation of their use of Detective Mode,
"unknown individuals continue to possess and potentially spread" their private
information. (Id. at 33).
Assuming those allegations as true, Aspen Way may have violated the
ECP A. The ECP A prohibits the intentional disclosure or use of any intercepted
electronic communication. 18 U.S.C. § 251 l(l)(c), (d). If the plaintiffs in the
Byrd Action prove all their allegations against Aspen Way, the plaintiffs will have
suffered "personal and advertising injury" as defined in Liberty Mutual's policies.
Accordingly, there has not been an "unequivocal demonstration" that the Byrd
Action does not fall within the policies' coverage. Staples, 90 P.3d at 386.
B. Reformation of the 2010 and 2011 Umbrella Policies
Now that the Court has found that coverage is triggered in the Byrd Action,
the next question is whether coverage is precluded by the Recording and
Distribution Exclusion. The Court first must decide how to construe the Recording
and Distribution Exclusions in the 2010 and 2011 Umbrella Policies. As discussed
above, the exclusions in the 2010 and 2011 Umbrella Policies are missing key
verbs that are present in the primary policies and the 2012 Umbrella Policy.
Liberty Mutual argues that this Court should reform the Recording and
Distribution Exclusion in the 2010 and 2011 Umbrella Policies to mirror the same
exclusion in the 2012 Umbrella Policy. This Court agrees.
20

Mont. Code Ann.§ 28-2-1611 provides:
When, through fraud or a mutual mistake of the parties or a mistake of
one party while the other at the time knew or suspected, a written
contract does not truly express the intention of the parties, it may be
revised on the application of a party aggrieved so as to express that
intention, so far as it can be done without prejudice to rights acquired
by third persons in good faith and for value.
"The mistake of the scrivener or draftsperson who prepared the instrument alone is
insufficient grounds for reformation." Goodman Realty, Inc. v. Monson, 883 P.2d
121, 123 (Mont. 1994). There must be "fraud, mutual mistake, or a mistake by one
of the parties that the other party knew of or suspected." Estate ofIrvine v. Oaas,
309 P.3d 986, 990 (Mont. 2013). The mistake must be proven by clear and
convincing evidence. Thibodeau v. Bechtold, 198 P.3d 785, 789 (Mont. 2008).
The reformation of a contract is not limited to the correction of language
errors, but can include inquiring into the contract's meaning and intent. Estate of
Irvine, 309 P.3d at 990. Courts cannot change the meaning of a contract through

reformation, but rather courts are limited to the parties' mutual intent. Id. Further,
"negligence of the party creating the mistake is not necessarily a bar to judicial
reformation of a contract." E.H Oftedal & Sons, Inc. v. State ex rel. Montana
Transp. Comm'n, 40 P.3d 349, 359 (Mont. 2002). However, an aggrieved party

that knew of the mistake when the contract was executed cannot rely on a
unilateral mistake to reform a contract. Goodman Realty, 883 P.2d at 124.

21

The Montana Supreme Court has not addressed whether Montana law allows
reformation of an insurance policy. See Lincoln Cnty. Port Auth. v. Allianz Global

Risks US. Ins. Co., 315 P.3d 934, 942 (Mont. 2013). However, this Court finds
that reformation of an insurance policy is consistent with Montana law. "[A]n
insurance policy is a contract and is therefore subject to the applicable contract law
of Montana." Bailey v. State Farm Mut. Auto. Ins. Co., 300 P.3d 1149, 1153
(Mont. 2013). This includes the interpretation of an insurance contract's terms.

Lincoln Cnty. Port Auth., 315 P.3d at 942. Reformation allows contracts to be
interpreted according to the parties' mutual intent. Estate ofIrvine, 309 P.3d at
990. Since reformation is a principle of contract interpretation, and the
interpretation of insurance policies is subject to contract law, Montana law allows
the reformation of insurance policies.
Here, the Court finds that Liberty Mutual has shown by clear and convincing
evidence that omitting the words in the Recording and Distribution Exclusions
contained in the 2010 and 2011 Umbrella Policies constitutes a mistake by Liberty
Mutual that Aspen Way should have suspected. Therefore, the Court reforms the
Recording and Distribution Exclusions contained in those policies to mirror the
same exclusion found in the 2012 Umbrella Policy.
As reproduced above, the exclusions in the 2010 and 2011 Umbrella Policies
preclude coverage for any action arising from:
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d. Any federal, state or local statute, ordinance or regulation, other
than the TCPA or CAN-SPAM Act of2003, or FCRA and their
amendments and additions, that collection, recording, sending,
transmitting, communicating, or distribution of material or
information.

(Id. at 22; Doc. 62-28 at 16). The lack of verbs or any connecting words between
"amendments and additions," and "that collection" renders the sentence
nonsensical.
Liberty Mutual' s intention is evidenced by other documents in Aspen Way's
possession when it received the 2010 and 2011 Umbrella Policies. A Notice to
Policyholders accompanied both policies. The Notice stated that the Recording
and Distribution Exclusion was designed to explicitly exclude "liability coverage
for. . .injury arising out of any action or omission that violates, or is alleged to
violate ... federal, state or local statute, ordinance or regulation concerning disposal
and dissemination of personal information." (Doc. 62-27 at 24; Doc. 62-28 at 18).
Further, Aspen Way possessed primary policies for 2010 and 2011 that contained
the Recording and Distribution Exclusion that clearly precluded coverage for any
action arising under:
... (4) Any federal, state or local statute, ordinance or regulation, other
than the TCPA, CAN-SPAM Act of 2003 or FCRA and their
amendments and additions, that addresses, prohibits, or limits the
printing, dissemination, disposal, collecting, recording, sending,
transmitting, communicating or distribution of material or
information.

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(Doc. 62-13 at 31 ). Finally, the Notice to Policyholders accompanying the 2012
Umbrella Policy stated that it contained an updated Recording and Distribution
Exclusion that "adds language that was mistakenly omitted in the original version."
(Doc. 62-29 at 8).
If Aspen Way read the Recording and Distribution Exclusions contained in

the 2010 and 2011 Umbrella Policies, it would have at least suspected that Liberty
Mutual mistakenly omitted words. The Notice to Policyholders and the correct
language contained in the primary policies signaled the mutual intent as to the
meaning of the Recording and Distribution Exclusions. There is clear and
convincing evidence that Liberty Mutual intended to include the key verbs in the
2010 and 2011 Umbrella Policies, but mistakenly omitted them.
Given the Notice to Policyholders and the correct language in the primary
policies, the Court finds there is also clear and convincing evidence that Aspen
Way suspected the error. At the very least, Aspen Way would have suspected the
mistake had it read the policies. Finally, it was the mutual intent of the parties to
include the correct version of the Recording and Distribution Exclusion in the 2010
and 2011 Umbrella Policies. Even with the mistake, the exclusion's goal is
obvious - to preclude coverage for allegations alleging a violation of federal
statute pertaining to the collection of information. Aspen Way accepted the

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Recording and Distribution Exclusions, as it paid the premiums and accepted the
policies.
The Court is not persuaded by Aspen Way's attempt to create a dispute of
material fact. In an affidavit, Aspen Way's CEO states that "Aspen Way had no
knowledge of the alleged typographical error purported to be contained in [Liberty
Mutual's] 2010 and 2011 Umbrella Policies" and that "Aspen Way had no intent or
understanding that the phrase 'addresses, prohibits or limits the printing,
dissemination, disposal' should have been included in the 2010 and 2011 Umbrella
Policies' [Recording and Distribution Exclusions]." (Doc. 75-1at4-5). Aspen
Way's CEO did not deny suspecting there was an error.
While conflicting evidence is usually viewed in a favor of the nonmoving
party, only "rational" or "reasonable" inferences are sufficient to defeat a motion
for summary judgment. T. W Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809
F.2d 626, 631 (9th Cir. 1987). "Where the record taken as a whole could not lead a
rational trier of fact to find for the non-moving party, there is no genuine issue for
trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986) (internal quotation omitted). In viewing the record as a whole, the Court
finds that a rational fact finder could not conclude that Aspen Way did not know,
or at the very least suspect, that Liberty Mutual made an error in those exclusions.
As contained in the 2010 and 2011 Umbrella Policies, the Recording and
25

Distribution Exclusions are nonsensical. They are obviously missing some verbs.
It is clear which verbs are missing when the 2010 and 2011 Umbrella Policies are

read in conjunction with the Notice to Policyholders and the primary policies. If
Aspen Way read the exclusions, it could not credibly claim that it did not suspect
an error. Notably, Aspen Way does not propose an alternative reading of the
exclusions or describe how Aspen Way interpreted them.
Accordingly, the Court will reform the Recording and Distribution
Exclusions in the 2010 and 2011 Umbrella Policies to mirror the same exclusion
found in the 2012 Umbrella Policy found at Doc. 62-29 at 24. Subsection (d) of
the Recording and Distribution exclusion in all the umbrella policies shall preclude
coverage from any action alleging a violation of:
d. Any federal, state, or local statute, ordinance, or regulation, other

than the TCPA or CAN-SPAM Act of2003, or FCRA and their
amendments and additions, that addresses, prohibits, or limits the
printing, dissemination, disposal, collecting, recording, sending,
transmitting, communicating or distribution of material or
information.

(See Doc. 62-29 at 24).
C. Applying the Recording and Distribution Exclusion
The next step is determining whether the Byrd Action is excluded from
coverage. "Exclusions from coverage are to be narrowly and strictly construed
because they are contrary to the fundamental protective purpose of an insurance
policy." Steadele v. Colony Ins. Co., 260 P.3d 145, 149 (Mont. 2011). An
26

exclusion is ambiguous if it is reasonably subject to two interpretations. Id. Any
ambiguity "is to be interpreted most strongly in favor of the insured and any doubts
as to coverage are to be resolved in favor of extending coverage for the insured."

Id. However, courts should not "seize upon certain and definite covenants
expressed in plain English with violent hands, and distort them so as to include a
risk clearly excluded by the insurance contract." Travelers Cas. & Sur. Co. v. Ribi

lmmunochem Research, Inc., 108 P.3d 469, 474 (Mont. 2005) (internal quotation
omitted). "Ambiguity does not exist just because a claimant says so or just
because the parties disagree as to the meaning of the contract provision."

Giacomelli v. Scottsdale Ins. Co., 221 P.3d 666, 672 (Mont. 2009).
Here, the Court finds that coverage for the Byrd Action is excluded by the
Recording and Distribution Exclusion. As mentioned numerous times above, the
Recording and Distribution Exclusion precludes coverage from any suit that
alleges a violation of a federal statute that prohibits the transmitting or distribution
of material or information. The only remaining count in the Byrd Action is the
allegation that Aspen Way violated the ECPA by using Detective Mode. The
ECP A is a federal statute that prohibits the disclosure or use of intercepted
electronic communications. 18 U.S.C. § 251 l(l)(c), (d). Since the ECPA is a
federal statute as described by the Recording and Distribution Exclusion, the

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Byrds' allegation that Aspen Way violated the ECPA by transmitting and
collecting personal information is excluded from coverage.
The Court is not persuaded by Aspen Way's efforts to avoid a
straightforward application of the Recording and Distribution Exclusion. First,
Aspen Way argues that the exclusion is ambiguous due to its use of the phrase
"arising directly or indirectly out of any action or omission." Aspen Way correctly
states that under Montana law, the phrase "arising out of' is inherently ambiguous
in the insurance context. Troutt v. Colorado W. Ins. Co., 246 F .3d 1150, 1160 (9th
Cir. 2001 ). However, Aspen Way does not propose an alternate interpretation of
the phrase "arising directly or indirectly out of any action or omission." (Doc. 6213 at 31 ). A policy's term is not automatically invalidated because it is found to be
ambiguous. Instead, the ambiguous provision is given the construction that favors
the insured. Pablo, 995 P.2d at 463.
This Court cannot imagine a reasonable construction of the phrase "arising
directly or indirectly out of any action or omission" that would render the
Recording and Distribution Exclusion inapplicable to the Byrd Action. In Wendell

v. State Farm Mut. Auto. Ins. Co., the Montana Supreme Court determined that the
phrase "arising out of the use" in uninsured motorist coverage was ambiguous as it
was reasonably subject to more than one interpretation. 974 P.2d 623, 638-39
(Mont. 1999). The phrase could be constructed narrowly to mean that the
28

uninsured vehicle was the instrument that caused injury. Id. at 639. The phrase
"arising out of the use" could also be construed broadly to mean "originate from,
or grow out of, or flow from the use." Id. The Montana Supreme Court applied
the broad interpretation as it favored the insured. Id. at 639-40. Similarly, in

Pablo, the Montana Supreme Court held that "arising out of' was ambiguous. 995
P.2d at 462-63. The term could be construed broadly as in Wendell. However,
since a narrower construction benefitted the insured, the Court interpreted "arising
out of' to be limited to torts specifically related to the use of a vehicle. Pablo, 995
P.2d at 400.
Here, the Court cannot find a reasonable construction of "arising directly or
indirectly out of any action or omission" that results in coverage for Aspen Way.
Whether the Court applies a broad definition as in Wendell or a narrow definition
as in Pablo, the Byrd Action arises out of Aspen Way's alleged violation of the
ECPA.
Aspen Way claims that "other courts have also deemed this exclusion
ambiguous." (Doc. 74 at 24). However, Aspen Way does not cite any such cases.
The case Aspen Way immediately cites after that statement actually applied the
Recording and Distribution Exclusion to preclude coverage. Big 5 Sporting Goods
Corp. v. Zurich Am. Ins. Co., 957 F. Supp. 2d 1135, 1151 (C.D. Cal. 2013).

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Aspen Way also argues that the common law invasion of privacy allegations
contained in Count II were dismissed only as to Aaron's but remain intact against
Aspen Way. As discussed in the beginning, Count I in the Byrd Action alleges the
violation of the ECPA and Count II alleged the tort of invasion of privacy. (Doc.
62-3 at 34-40). Aspen Way assumes that Count II would not be excluded by the
Recording and Distribution Exclusion as it does not allege a violation of a statute,
regulation, or ordinance. If true, Liberty Mutual would be required to defend
against all counts under the "mixed-action rule." See State Farm Fire & Cas. Co.

v. Schwan, 308 P.3d 48, 51 (Mont. 2013).
Aspen Way misreads the District Court's Order that dismissed Counts II, III,
and IV. The District Court clearly dismissed every count in its entirety except
Count I by describing it as the "only remaining claim." Byrd, 14 F. Supp. 3d at
675. Count II was dismissed as the tort of invasion of privacy is not recognized in
Wyoming law. Id. at 692. Since Count II is not a viable claim, the Byrds could
not pursue it against any defendant. Count III was dismissed because the ECPA
does not allow for secondary liability. Id. at 674-75. The Byrds apparently
abandoned Count IV. Id. at 693-94. The District Court concluded that Counts II,
III, and IV were not legally viable. Accordingly, they were dismissed in their
entirety.

30

Aspen Way presents the alternative argument that even if Count II was
dismissed in its entirety, under the "mixed-action rule" the duty to defend
continues even after the covered claim's dismissal until all claims are completely
extinguished. However, the Montana Supreme Court rejected that argument in

City ofBozeman v. AIU Ins. Co., 865 P.2d 268 (Mont. 1993). In City ofBozeman,
the Court held that an insurer can withdraw its defense of an insured upon the
dismissal of the potentially-covered claim if there is not an immediate appeal of the
dismissal. Id. at 273. The insurer must resume the defense if an appellate court
later remands the case and revives the dismissed claim. Id.; see also 14 Steven
Plitt et al., Couch on Insurance§ 200:48 (3d ed. 2015) ("If the covered claims
have been dismissed in the underlying action, an insurer's duty to defend is
generally terminated"). The Court finds that success on appeal of the dismissal of
Count II is unlikely, as Wyoming law clearly does not recognize the tort of
invasion of privacy. See Byrd, 14 F. Supp. 3d at 692.
In conclusion, a narrow reading of the Recording and Distribution Exclusion
shows that the Byrd Action is precluded from coverage under Liberty Mutual' s
policies. Since there is no coverage, Liberty Mutual does not owe a duty to defend
Aspen Way in the Byrd Action.

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D. Bodily Injury

Aspen Way argues that even if there is no coverage for the alleged "personal
or advertising injury," there is coverage under Coverage A for "bodily injury."
The Court does not reach the question of whether the Byrd Action alleges "bodily
injury," as bodily injury is also excluded from coverage by the Recording and
Distribution Exclusion. (Doc. 62-29 at 24).

IV. The Washington Action
The Court also finds Liberty Mutual did not owe a duty to defend Aspen
Way in the Washington Action. However, the Court does not consider whether
coverage is precluded by the Recording and Distribution Exclusion in the
Washington Action. Instead, the Court determines that coverage was not triggered,
as the State did not allege the requisite "publication" to trigger coverage for
"personal and advertising injury."
As discussed above, Liberty Mutual's policies provide coverage for
allegations of"personal and advertising injury." (Doc. 62-13 at 19). "Personal
and advertising injury" means injury arising out of"[ o]ral or written publication, in
any manner, of material that violates a person's right of privacy." (Id. at 28). As
stated above, this Court defines "publication" in this context as dissemination of
information to at least a third party.

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In the Washington Action, the Court finds that the State has not alleged
facts, which if proven, would have amounted to "publication." The crux of the
State's Complaint was that Aspen Way violated Washington law by collecting and
retaining their customers' private data. Count 1 alleged a violation of
Washington's Consumer Protection Act by misrepresenting and failing to alert
customers to PC Rental Agent's capabilities. (Doc. 62-7 at 6). Count 2 alleges
deceptive collection of private information in violation of Washington's Computer
Spyware Act. (Id. at 7). Count 3 alleges a violation of the Computer Spyware Act
by remotely installing Detective Mode without the customers' knowledge and by
not allowing the customers the option of withholding consent to its installation.
(Id. at 8). Finally, Count 4 alleges another violation of the Consumer Protection

Act by collecting private and confidential information. (Id. at 9). Although Count
4 is titled "Unfair Collection and Disclosure of Private and Confidential
Information," the alleged facts, not the titles of the causes of action, are dispositive.
The State did not allege that Aspen Way disclosed any private information.
Instead, the allegations focused on Aspen Way's use of "PC Rental Agent to
collect information on consumers" and "collect private computer activity while
consumers were unaware of the activities being recorded." (Id.).
The State in the Washington Action did not allege facts that, if proven,
would amount to "publication." Accordingly, the State did not allege "personal or
33

advertising injury" and coverage was not triggered. The allegations focused on
Aspen Way's installation of Detective Mode and the retention of data. The mere
act of collection was an alleged violation of Washington law. This is in contrast
with the Byrd action, where Aspen Way could be held liable under the ECPA for
disclosing or transmitting private information to third parties. Since the
Washington Action was not covered under the policies, Liberty Mutual did not
owe a duty to defend.

V. Aspen Way's counterclaims
Liberty Mutual is also entitled to summary judgment on Aspen Way's
counterclaims. As discussed above, Liberty Mutual has not breached their
contracts with Aspen Way. Further, since there is no coverage, Liberty Mutual had
"a reasonable basis in law or in fact for contesting the claim" and Aspen Way's
counterclaim under the UTPA also fails. Mont. Code Ann.§ 33-18-242.

VI. Conclusion
For reasons discussed above, IT IS HEREBY ORDERED:
1. Liberty Mutual's Motion for Summary Judgment (Doc. 60) is
GRANTED.
2. Liberty Mutual did not owe Aspen Way a duty to defend or indemnify in
the Washington Action.

34

3. Liberty Mutual does not owe Aspen Way a duty to defend or indemnify in
the Byrd Action.
4. Aspen Way's Motion to Strike (Doc. 84) is DENIED AS MOOT. The
Court did not rely upon or reference any of Liberty Mutual' s statements or
representations in its Responses to Aspen Way's Additional Facts (Doc. 83).
5. Liberty Mutual shall file a brief within 14 days indicating whether it
seeks an order requiring reimbursement of its already expended costs as requested
in the Complaint. Liberty Mutual must state the legal authority for its claim.
Aspen Way may file a response in opposition to Liberty Mutual' s position within
14 days of Liberty Mutual's opening brief.

'// <..j/._

DATED this gf day of September, 2015.

~ew~

'SlJSANP. WATTERS
United States District Judge

35