Transmitting Information to Credit Reporting Agencies Constitutes “Electronic Publishing”

The United States District Court for the Eastern District of Missouri, applying Missouri law, has held that a consumer class action alleging false credit reporting is potentially covered under a management liability policy. Alltrue Fed. Credit Union v. Starnet Ins. Co., No. 21-CV-01334-JAR, 2022 WL 4482405 (E.D. Mo. Sept. 27, 2022).

The insured was a credit union facing a consumer class action lawsuit. The lawsuit alleged that the credit union had failed to issue UCC-compliant notices pertaining to repossessed collateral for consumer loans.  It also alleged that the credit union had defamed consumers by making false and derogatory credit reports to consumer credit reporting agencies. The parties eventually settled their dispute.

After receiving notice of the complaint, the credit union’s insurer determined that two of the policy’s insuring agreements were not implicated. First, the insurer argued that there was no coverage under the “Third Party Harassment Liability” insuring agreement, which covered loss for “third-party harassment.”  The definition of that term in the policy included five subparagraphs that each listed certain conduct deemed “third-party harassment,” including defamation. Following that list was the phrase “of a natural person other than an employee, officer or director and other than as part of a lending act.” The insurer asserted that the “series-qualifier canon” dictated interpretation of the definition—that the last phrase modified each of the five subparagraphs that came before it, and that therefore, the lawsuit did not implicate the insuring agreement because, while it did allege defamation, the defamation occurred “as part of a lending act.” In response, the credit union urged that the “rule of the last antecedent” applied—that the definition’s final phrase modified only the subparagraph that came immediately before it (and not the earlier subparagraph listing defamation as “third party harassment”). The court agreed with the insurer. It held that “an ordinary person of average understanding would construe the phrase as modifying each paragraph in the series. . . . [I]f [the insurer] had intended to modify only [the last subparagraph], it could have put the modifying phrase on the same line.”

Second, the insurer argued that there was no coverage under the policy’s “Electronic Publishing Liability” insuring agreement, which covered loss for claims “for an electronic publishing act” that the insured was “legally obligated to pay.” The Policy defined “electronic publishing act” to include “libel or slander resulting from the electronic publishing of material that defames a person” and “violation of the right of privacy or right of publicity of any person or organization by the electronic publishing of material that publicly discloses private facts.” The insurer urged that the lawsuit did not allege any “electronic publishing acts” because all defamatory statements were “oral or written” rather than electronic, and because none of the credit union’s disclosures to the credit reporting agencies were made available to the general public. The insured disagreed, and highlighted that the lawsuit’s settlement agreement released claims for “any claim related to or arising out of [the credit union’s] electronic delivery and publication to three credit reporting agencies.” It also noted that credit report information is routinely made available to banks and lenders, and therefore there had been a public disclosure that constituted an “electronic publishing act.”

Although the court determined that the existence of an “electronic publishing act” was a factual question that the court could not decide on a motion to dismiss, it did conclude that the credit union was “legally obligated to pay” the underlying settlement. Thus, the court ruled that the insured had “alleged sufficient facts to plausibly show a potential for coverage under [the “Electronic Publishing Liability” insuring agreement].”

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