Liberty Mutual Fire Insurance Company v. General Information Services, Inc. et al

Filing 67

MEMORANDUM OPINION. Signed by District Judge Robert E. Payne on 5/20/14. (jtho, )

IN THE UNITED

STATES DISTRICT COURT

EASTERN DISTRICT

OF VIRGINIA

Richmond Virginia

LIBERTY

MUTUAL

FIRE

INSURANCE COMPANY,
Plaintiff/

Counterclaim Defendant,
Civil

v.

GENERAL

Action

No.

3:13cv375

INFORMATION

SERVICES,

INC.

et al.,

Defendants/
Counterclaim Plaintiffs

MEMORANDUM OPINION

This matter is before the Court following a bench trial.
the

reasons set

forth below,

judgment will be

Liberty Mutual Insurance Company

For

entered in favor of

("Liberty Mutual")

declaring that

it has no insurance obligations.

PROCEDURAL BACKGROUND

Liberty Mutual filed this diversity action seeking declaratory
relief

against

General

Backgroundchecks.com,
subsidiary of

policies
Henderson

GIS

here
v.

is not

GIS,

at

Information

Inc.

("BGC")

and both

issue.

are

BGC1

defendant

Inc.

("GIS")

(collectively "BGC").
insured

also

Backgroundchecks.com,

named as a

Services,

is

Civil

under

the

the

named

Action

and

BGC is

Liberty

No.

in the Henderson Suit.

E-

a

Mutual

defendant

in

3:13cv29,

an

action

brought

1681 et seq.
In

under

the

Fair

Credit

Reporting

Act,

15

U.S.C.

§

(the "Henderson Suit").

its

First

Amended

Complaint

{"FAC"),

Liberty

Mutual

requests a declaration "that Liberty Mutual has no duty to defend
Defendants

under

alternative,
by

the

Policies

for

the

Henderson

Suit,

or

in

the

that any duty to defend by Liberty Mutual is limited

terms,

Policies"

the

that

exclusions,

are

identified

(FAC,

subsequently.
counterclaim

conditions,

Docket

that

Mutual's FAC.

is

There,

in

and

the

FAC

31,

at

No.

essentially

the

limitations

and

will

21.)2

mirror

be

of

addressed

BGC

image

the

filed

of

a

Liberty

BGC alleges that Liberty Mutual breached "its

duty to defend BGC with respect to the Henderson Suit," and seeks
specific performance,
declaration
terms

and

"that

damages,

Liberty

provisions

Defendants'

interests

of
in

and other relief.

Mutual
the

is

BGC also seeks a

legally

obligated

Mutual

Policies

Liberty

connection

with

the

under

the

to

defend

Henderson

Suit."

2 In Paragraph 82(g) of its FAC, Liberty Mutual asserted that it
might also rely on unspecified "additional terms, conditions,
limitations
and
exclusions."
Thereafter,
Liberty
Mutual
stipulated that it would not rely on any unspecified policy
provisions unless further amendments of the complaint in the
Henderson

by

the

Suit

Second

raised new

Amended

insurance

Class

issues

Complaint

that

in

the

were

not

raised

Henderson

Suit

(Docket No. 35 in Civil Action No. 3:13cv29).
(Stip.
II, 1
(Docket No. 60).)
By the time of trial, no further amendments

had been made in the Henderson Suit.
provisions

now

at

issue

other

than

Hence, there are no policy
those

herein

addressed.

Also, all claims relating to the two umbrella excess liability
policies issued to BGC by Liberty Mutual have been withdrawn by
the parties.
(Stip. I, A; Stip. II, 9.)

(Second Amended Counterclaims of General Information Services,

and E-Backgroundchecks.com,
The
The

action was

parties

60),

filed

tried by
an

and agreed on

parties

Inc.,

Docket No.

the Court

Omnibus

Set

of

fourteen exhibits.

presented

no

additional

42,

at 17-18.)

sitting without
Stipulations

At

Inc,

a

jury.

(Docket

No.

the bench trial,

the

evidence,

but

argued

their

respective legal positions based on their briefs and the Omnibus

Set

of

Stipulations

(Exhibits

1-16,

("Stip."),

with

Exhibits

together with
3 and

fourteen

4 withdrawn).

exhibits

The

Omnibus

Stipulations and the Exhibits constitute the record.
This
(GCL)

action

policies:

implicates
one

for

for 2008-2009 (Ex. 2).3
policies are the same.

the

two

general

period

commercial

2007-2008

(Ex.

liability
1)

and one

For the purposes of today's case, the
Thus,

the parties have stipulated that:

For
the
purpose
of
determining
whether
Liberty
Mutual
has
a
duty
to
defend
Defendants against the Henderson Suit, it is
sufficient
to
determine
whether,
upon
consideration
of
the
allegations
of
the
[Henderson SACC], Liberty Mutual has a duty
to defend under the CGL policy for the
period 2008-2009.
If the Court rules that a
duty to defend exists pursuant to the 20082009 CGL policy, then a judgment shall be

entered that Liberty Mutual also has a duty
to defend under the 2007-2008 CGL policy.
Conversely, if the Court rules that there is
no duty to defend under
policy,
then a judgment

3 Originally,
as well.
neither

the 2008-2009 CGL
shall be entered

the litigation also involved two umbrella policies

The parties have withdrawn that issue,
further examined nor decided.
3

and it will be

that Liberty Mutual also has no duty
defend under the 2007-2008 CGL policy.
(Stip.

to

II, 4.)

BACKGROUND

The request for declaratory relief filed by Liberty Mutual
and BGC's counterclaim arise from their differing views of what
is

alleged

in

the

Henderson

Suit

and

how

those

provide

allegations

affect Liberty Mutual's

obligation to

a defense

to

BCG

in the Henderson Suit.

It thus is necessary to understand what

is alleged in the Henderson Suit.
The operative complaint in the Henderson Suit is the Second

Amended Class Complaint
SACC asserts

and an

three

("Henderson SACC")(Ex.

claims:

individual claim

two class

(Count

III)

claims

that

is

7). The Henderson
(Counts

I

and

asserted on

II)

behalf

of several individual plaintiffs.
In Count I,

the Henderson SACC alleges that BGC violated 15

U.S.C. § 1681k(a)(1) because BGC "did not provide Plaintiffs and
other similarly situated consumers timely and lawful notice that
it was furnishing an employment purposed consumer report at the
time

it

di

Henderson
because,

so."

SACC
when

(Ex.

alleges
the

7,

5

that

4

&

Count

BGC violated

plaintiffs

requested

provided to prospective employers and "a
made

to

[BGC]

for

their

I).

reports,"

BGC

15
the

In

Count

U.S.C.
reports

list of all
did

not

§

II,

the

1681g(a)
that

BGC

inquiries

"disclose

the

(Ex. 7, % 5 & Count II).

inquiries for reports."

In Count III

of the Henderson SACC, it is alleged that BGC violated 15 U.S.C.
§

1681e(b)

by

failing

procedures

to

assure

preparation

of

consumer

to

establish

maximum

prospective employers of

or

follow

possible

reports

that

reasonable

accuracy

BGC

furnished

individual plaintiffs

(Thomas,

in

the

to

the

Johnson

and Edwards).

BGC contends that Liberty Mutual is obligated to defend BGC
as

to

all

claims

in

the

Henderson

Suit.

Liberty

that it has no duty to defend the individual claims
because

the

conduct

on

which

those

claims

is

based

Mutual

says

(Count III)
occurred

in

2011 and 2012, more than two years after the applicable Liberty

Mutual policy expired.

As to the class

claims

(Counts' I and

II), Liberty Mutual contends that, because of the nature of the

alleged injuries to the class,

the policy,

by its terms,

does

not provide coverage.4
DISCUSSION

I.

Legal Standard

The parties agree that the
the
"the

analysis of

law of South Carolina controls

all policy issues.

Under

South Carolina

law,

obligation of a liability insurance company to defend and

indemnify

is determined

by

the

allegations

in

the

complaint."

4 Alternatively, says Liberty Mutual, there are policy exclusions
that foreclose coverage for the class claims.
5

Collins

Holding

S.E.2d

897,

Corp.

v.

(S.C.

2008).

899

Wausau

Underwriters

"If

the

Ins.

facts

Co.,

alleged

666

in

the

complaint fail to bring a claim within the policy's coverage,
the insurer has

no duty to defend."

Id.

The insured must show

that the underlying complaint creates a "reasonable possibility"
of

coverage

Inc.

v.

under

the

Cincinnati

"Questions

of

insurance

Ins.

coverage

Co.,

and

policy.

265

the

Gordon-Gallup

S.E.2d

duty

38,

...

40

to

Realtors

(S.C.

1980).

defend

a

claim

brought against its insured are determined by the allegations of
the third party's complaint." Isle of

Palms Pest Control Co.

Monticello

319

aff'd,

Ins.

Co.,

459

468 S.E.2d 304

S.E.2d

318,

(S.C. 1996).

(S.C.

Ct.

App.

v.

1994),

If the alleged acts create "a

possibility of coverage under an insurance policy, the insurer
is obligated
insured

to

show

that

insurance contract."

185

F.

omitted).

Id.

to defend."

Supp.

2d

"The

a

claim

"The burden
falls

Sunex Int'l,

614,

617

insurer

Id.

complaint

includes

covered

inclusion

of

some

Inc.

v.

the

is on the

coverage

Travelers

burden

of

of

Indem.

2001)(internal

the

exclusions to coverage."
both

within

(D.S.C.

bears

of proof

non-covered

establishing

non-covered

claims

does

Co.,

citation

(internal citation omitted).
and

an

If a

claims,

not

abrogate

"the
an

insurer's duty to defend when a complaint raises claims covered
by the policy."
319.

Isle

of

Palms

"Under South Carolina

law,

Pest Control Co.,
insurance

459 S.E.2d at

policies

are

subject

to

the

general

rules

citation omitted).

of

contract

construction."

parties

agree,

allegations
that,

II.

in

(internal

These principles guide the resolution of the

request for declaratory judgment and the

the

Id.

the

the

analytical

Henderson

according to BGC,

counterclaim.

process

SACC

with

is

the

to

And,

compare

policy

as

the

provisions

animate the duty to defend.

The Liberty Mutual Policies
BGC s claim for a defense under the Liberty Mutual Policies

is

based

on

the

coverage

advertising injury."
advertising

provided

(Ex.

injury"

is

therein

2, at 10,

defined

to

for

Coverage B) .
mean

"injury

"personal

and

"Personal and
...

to

the

feelings and the reputation of a natural person . . . caused by
an offense arising out of your business . . . ." (Ex.
item

2a.)

enumerated

It

conduct,

material that
13,
have

also

including

slanders or

item 2b(4).)
been

includes

"oral

arising

or

out

written

libels a person

of

at 12,
certain

publication

. . . ."

(Ex. 2,

of
at

The policies expressly require the offenses to

"committed

policy period."

injury

2,

in

the

coverage

territory'

during

the

(Ex. 2, at 10, item lb.)

III. The SACC Allegations and the Policy Language

Because

BCG's

coverage

Counts I and II depends on
the

individual

plaintiffs

theory

the

in

for

nature of

Count
7

III,

the

class

the

damages

it

is

claims

helpful

in

sought by
first

to

assess

the

individual

plaintiffs

assure

allegations

in

claims

Count

in

allege

that

in

plaintiffs "actual damages,
to

reputation,

Henderson
III.

BGC's

accuracy

maximum

damage

the

acknowledges

to

the

follow

consumer

embarrassment,

that

respecting

the

individual

procedures

reports

caused

to

the

including . . . loss of employment,

emotional and mental distress."
rightly

There,

failure

the

SACC

humiliation

(Ex. 7, SI 86).

the

kind

individual plaintiffs in Count III

of

and

other

Liberty Mutual

injury

claimed

fits within the

by

the

scope of the

"personal and advertising" provision of its policy.
However,

according

to

Liberty

Mutual,

the

policy

nonetheless does not afford coverage because the conduct that is

alleged

to

have

caused

those

injuries

years after the policy expired.

Nonetheless,
claims

because

within

the

SACC

the

period

alleges

plaintiffs

says BGC,

are

In BGC's view,

class

the

typical

than

two

there is coverage for the individual
claims

injuries

of

more

BGC admits that to be so.

encompassed by

that

occurred

the

are
the

alleged

to

have

policy

and

the

sustained

injuries

by

the

suffered by

occurred
Henderson

individual

the

class.

the fact that the Henderson SACC pleads that the

individual injuries are typical of the injuries suffered by the
class

also

means

(Counts I and II).

that

there

is

coverage

for

the

class

claims

The principal problem with
counts

the

(Counts I and II)

same

kinds

of

do

not

injuries

plaintiffs in Count III.

BGC's

theory is that the class

allege that the class suffered

as

claimed

by

the

individual

A comparison of the allegations about

the injuries proves the point.
In

Count

damages,

III,

including

reputation,

that

.

.

loss

plaintiffs

of

fall

injury."

within

and

11

to

and

II

is those

terms

coverage

from $100.00

to

it

"personal

of

the

the plaintiffs do not seek actual damages.

claim "statutory damages

damage

And,

I and

"actual

emotional

other

86. )5

the

In Counts

seek

employment,

humiliation

(Henderson SACC,

clearly

and advertising

SACC,

.

individual

embarrassment,

mental distress."
damages

the

Henderson

Rather,

they

$1,000.00 pursuant to

15 U.S.C. § 1681n(a) (1) (A) , plus punitive damages pursuant to 15
U.S.C.

§

1681n(a)(2),

to § 1681n."

Thus,
that

the

for

(Henderson SACC,

attorney
% 69

fees

(Count I);

and

costs

pursuant

H 83 (Count II)).

a comparison of the types of damages sought reflects
class

include

actual

damages

and

damages are.
within

and

the

damages

damages

goes

to

asserted

whereas

some

in

Count

length

to

Counts

III

I

and

II

do

clearly seeks

explain

what

those

not

actual
actual

Statutory and punitive damages are not encompassed
coverage

term

"personal

5 In paragraph 88,
it is said
plaintiffs
seek
"actual
damages
punitive damages,

and

advertising

that the
three individual
and/or
statutory
damages,

costs and attorney's fees."
9

injury."

Indeed, BGC does not even argue that damages of that description

fit within the coverage terminology.

In fact,

that is why BGC

finds it necessary to rely on the notion that there is coverage
because,

according to

BGC,

in Counts

I and

II,

the

plaintiffs

say that the injuries sustained by the individual plaintiffs are
typical of those sustained by the class.
BGC bases
the

that

so-called

world

view

"typicality"

of

coverage

paragraphs

on

in

the

the

class

(Henderson SACC, SI 62 (Count I); II 75 (Count II)).6
rests on the
reads:
class

first

sentence of

"Plaintiffs'
member."

5)(emphasis
"claims,"

claims

(Defendants'

added).
not

to

the

are

damages

Pretrial

or

of

claims

BGC's theory

typicality paragraphs which

typical

However,

language

that

of

Brief

the

of

(Docket No.

text

injuries.

claims

clearly

Thus,

49),

refers

BGC's

each
at

to

threshold

premise is wrong.

Moreover, the next sentence in the typicality

paragraphs reads:

"Plaintiffs seek only statutory and punitive

damages."

Taken as a whole, the allegations of the "typicality"

paragraphs cannot reasonably be read to assert, on behalf of the
classes

{in

Counts

I

and

II),

the

actual

damages

that

are

asserted on behalf of the individual plaintiffs in Count III and
that

constitute

"personal

and

a

basis

advertising

for

coverage

injury."

within

Thus,

the

the

policy

text

of

term

the

6 Fed. R. Civ. P. 23(a)(3) requires that "the claims or defense
of the representative parties [must be] typical of the claims or
defenses

of the class."
10

"typicality" paragraphs

in

the

Henderson

SACC

simply does

not

support BGC's coverage theory.
BGC's

definition

the

next

in

line

one

so-called

of

attack

subclass

"1681k

rests

Count

in

on

I

Accuracy

the

of

text

the

Sub-Class."

of

the

class

Henderson

SACC:

That

definition

reads:

All natural persons residing in Virginia,
North Carolina, South Carolina, Maryland or
West Virginia (a.) who were the subject of a
report sold by Defendant to a third party,
(b.) that was furnished for an employment
purpose,
(c.) that contained at least one
public record of a criminal conviction or
civil
lien,
bankruptcy
or
civil
arrest,
judgment (c.) [sic] within five years next
preceding the
filing of this action and
during its pendency, (d) [sic] when a manual
review

of

the

record

would

reveal

that

the

identity associated with the public record
does not match the identity of the class
member about whom the report was furnished
(e.) [sic] to whom Defendant did not place
in the United States mail postage pre-paid,
the
day
it
furnished the
report,
a
on
written notice that it was furnishing the
subject report and containing the name of
the person that was to receive the report.
Excluded from the class definition are any
employees, officers, directors of Defendant,
any attorney appearing in this case, and any
judge assigned to hear this action.
Henderson SACC,

According

seeking damages
form

the

therefore,

basis

SI 59

to

BGC,

for
of

(Count I) .

this

the

the

same

text

kind

individual

means

of

that

report

claim

in

the

subclass

inaccuracies

Count

III

and

is

that
that,

this subclass is also seeking the same kind of actual
11

damages sought by the individual plaintiffs in Count III.

That

theory fails at the outset because the 1681k Accuracy Sub-Class
bases

its

maximum

liability

possible

claim

on

accuracy

§

1681k,

provision,

plaintiffs base their claim in Count

not
on

on

§

which

III.

1681e(b),
the

the

individual

Moreover,

the class

definition read as a whole makes it clear that the predicate for
liability in Count I is the failure of BGC to provide the class
with

the

notice

allegations

of

required

Count

I,

by

§

1681k.

wherein

lies

Finally,
the

1681k

the

damage

Accuracy

Sub-

Class, quite clearly seek only statutory and punitive damages.
For

the

allegations
and

the

Count

foregoing

of

class

I

do

the

"typicality"

definition

not

determination,

reasons,

of

animate

contention

paragraphs

the

the

BGC's

duty

I and

II

Sub-Class

in

defend.

to

Counts

the

Accuracy

1681k

in

that

Given

that

it is unnecessary to address the exclusions.

CONCLUSION

For

under

the

Defendant
defend

reasons

Liberty
Liberty

Defendants

Services,
Suit.

the

Inc.

or

set

forth

Mutual
Mutual
and

herein,

Policies,
Fire

the

Plaintiff

Insurance

Counterclaim

Company

Plaintiffs

E-Backgroundchecks.com,

For the same reasons,

Court

declares

and

Counterclaim

has

General

Inc.

in

that,

no

duty

to

Information

the

Henderson

the Court also declares that Plaintiff

12

and

Counterclaim

Defendant

Liberty

Mutual

Fire

Insurance

Company

did not breach the Liberty Mutual Policies.
Judgment

shall

be

entered

in

favor

of

Plaintiff

and

Counterclaim Defendant Liberty Mutual Fire Insurance Company and

against

Defendants

Information

and

Services,

Liberty

Mutual's

JUDGMENT

(Docket No.

OF

GENERAL

Inc.

FIRST
31)

is

and

Plaintiffs

General

E-Backgroundchecks.com,

AMENDED

COMPLAINT

FOR

Inc.

on

DECLARATORY

and on the SECOND AMENDED COUNTERCLAIMS

INFORMATION

BACKGROUNDCHECKS.COM,
It

Counterclaim

INC.

SERVICES,

(Docket No.

INC.

AND

42).

so ORDERED.

/s/

fe<>

Robert E. Payne
Senior United States District Judge

Richmond, Virginia
Date: May 1-0 , 2014

13

E-