A Sporting Retailer’s Bid for Coverage Gets Punted by the Ninth Circuit

The Ninth Circuit recently handed down a decision holding that insurers did not have a duty to defend their policyholder, a sporting goods retailer, in several ZIP code class action lawsuits.  The class action lawsuit all arose out of alleged violations of the Song-Beverly Act, a California statute which prohibits retailers from collecting customer ZIP code information as a purported requirement of credit card transactions. The court held that policy exclusions negated coverage.

In Big 5 Sporting Goods Corp. v. Zurich American Insurance Co., No. 13-56249, 2015 U.S. App. LEXIS 21185 (9th Cir. Dec. 7, 2015), the policyholder, Big 5 Sporting Goods Corporation, filed a complaint against Zurich American Insurance Company and Hartford Fire Insurance Company alleging that they had a duty to defend Big 5 in connection with the myriad underlying class action lawsuits.  The district court granted summary judgment in the insurers favor which Big 5 subsequently appealed.

Big 5’s arguments fared no better before the Ninth Circuit. Notably, all of the policies issued by the insurers contained exclusions for claims stemming from statutory violations. Notwithstanding the exclusions, Big 5 argued that the insurers had a duty to defend even if the underlying actions were bound to fail. The Ninth Circuit dismissed that argument out of hand because, while an insurer may have the duty to defend against claims that are meritless or frivolous, an insurer will not have the duty to defend when, as here, the claims were plainly excluded from coverage.

In an attempt to evade the exclusions for statutory violations, Big 5 insisted that the insurers should be forced to defend the underlying actions because they contained common law and California constitutional right to privacy claims that were allegedly separate and apart from the alleged Song-Beverly Act ZIP code violations. The Ninth Circuit rejected this argument stating that  “garden variety” ZIP code claims do not exist in the absence of the Song-Beverly Act. In addition, the court remarked that California does not recognize any common law or constitutional privacy right causes of action for requesting, sending, transmitting, communicating, distributing, or otherwise using ZIP codes. This decision provides important precedent for insurers in relation to suits involving Song-Beverly Act violations, a statute which has spawned an insurance coverage battleground.