Lewis Brisbois Successful in Getting Claims Against D&O Carrier Dismissed

Case:   Spec’s Family Partners, Ltd. v. The Hanover Insurance Company
             Federal Court for the Southern District of Texas
             Civil Action H-16-438 (3/15/2017)

A liquor retailer made a claim following two data breaches of its credit card payment system. Hanover issued a D&O Management insurance policy to the retailer. The retailer accepts payments from customers using Visa or MasterCard through a third-party transaction service provided by the credit card processer, who sent two demand letters to the retailer for claims arising from the data breaches for an amount well in excess of $4.2 million. The retailer notified Hanover of the demand letters.

Hanover and the retailer entered in to a Defense Funding Agreement in which Hanover consented to the retention of independent counsel for the defense under a reservation of rights for the Underlying Claim. The retailer initiated a lawsuit in United States District Court for the Western District of Tennessee asserting breach of contract claims against card processor to recover the initial $4.2 million it withheld from the retailer to reduce the credit card losses. The insured retailer filed an amended complaint against Hanover, asserting causes of action for breach of the Policy, breach of the Defense Funding Agreement, seeking a declaratory judgment on Hanover’s duty to defend, damages under Chapter 542 of the Texas Insurance Code, and attorneys’ fees. Hanover contended the claim was not covered based on an exclusion for liability assumed under a contract and that it did not owe a defense to the affirmative suit brought by the retailer against the card processor.

The district court granted Hanover’s Judgment on the Pleading, thereby dismissing the suit with prejudice, though the memo explaining his reasoning was filed under seal.