Data Breach Covered Under Traditional Travelers’ Policy, 4th Circuit Says

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VIRGINIA,  April 11  – The U.S.  Fourth Circuit Court of Appeals  has affirmed a ruling which obligates Travelers to defend Portal Healthcare in a class action case alleging its failure to protect a records server from unauthorized access.  What is mildly surprising is that the Court found this obligation exists under an Advertising Injury Endorsement to a commercial general liability policy issued by Travelers to Portal.

In an unpublished opinion, the appeals Court approved the  reasoning of a Virginia district court, which in 2014 ruled that Portal published, and therefore disclosed, confidential patient information, which falls under the terms of its policy with Travelers.   U.S. District Judge Gerald Bruce Lee found that Travelers had a duty to defend Portal because the medical records were “published,” implicating the personal and advertising injury coverage provision in the insurer’s CGL policy.

The Appeals Court held:

“[T]he [district court] opinion concluded that the class-action complaint ‘at least potentially or arguably’ alleges a ‘publication’ of private medical information by Portal that constitutes conduct covered under the policies.”

The appeals Court commended Judge Lee’s “sound legal analysis.”

In 2013,  Portal was sued in a New York class action claim alleging that it  negligently failed to secure a server containing confidential records for patients at a Glen Falls, New York, hospital.  The complaint alleged that this confidential material was available online for viewing without the need of a password.  Google searches by several of the patients discovered the breach.

Travelers denied coverage for the suit, and Portal filed suit against Travelers in federal court in Virginia for coverage.

Travelers Indemnity Co. of America v. Portal Healthcare Solutions LLC, 14-1944 (4th Cir. 2014)

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Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than a quarter of a century, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at chaddick@dmclaw.com or 717-731-4800.

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