RVST Holdings, LLC v. Main Street America Assurance Company , 25 N.Y.S.3d 712 ( 2016 )

State of New York
Supreme Court, Appellate Division
Third Judicial Department
Decided and Entered: February 18, 2016 521419
________________________________
RVST HOLDINGS, LLC, et al.,
Respondents,
v
MEMORANDUM AND ORDER
MAIN STREET AMERICA ASSURANCE
COMPANY,
Appellant.
________________________________
Calendar Date: January 12, 2016
Before: Peters, P.J., McCarthy, Rose and Lynch, JJ.
__________
Smith, Sovik, Kendrick & Sugnet, PC, Syracuse (Karen Guyder
Felter of counsel), for appellant.
Scheuermann & Scheuermann, LLP, Albany (Arthur Scheuermann
of counsel), for respondents.
__________
Rose, J.
Appeal from an order of the Supreme Court (Reilly Jr., J.),
entered October 23, 2014 in Schenectady County, which, among
other things, denied defendant's motion for summary judgment
dismissing the complaint.
Plaintiffs operate fast food restaurants and store their
customers' credit card information on their computer network.
The network was infiltrated by unknown individuals who unlawfully
obtained the customers' card information and then used that
information to make numerous fraudulent charges. Nonparty
Trustco Bank subsequently commenced an action against plaintiffs
that alleged, as relevant here, that plaintiffs had negligently
failed to exercise reasonable care in safeguarding the
-2- 521419
information of Trustco cardholders, which, in turn, caused
Trustco to sustain damages related to its reimbursement of the
fraudulent charges. Plaintiffs then sought coverage under their
business owner's insurance policy issued by defendant. After an
investigation, however, defendant declined to defend or indemnify
plaintiffs in the underlying Trustco action, asserting that the
policy excludes from coverage third-party claims arising out of
the loss of electronic data.
Plaintiffs thereafter commenced this action against
defendant seeking, among other things, a declaration requiring
defendant to defend and indemnify them in the underlying action.
Following joinder of issue, defendant moved for summary judgment.
Supreme Court denied the motion, searched the record and granted
summary judgment to plaintiffs, declaring that defendant has a
duty to defend them. Defendant now appeals, and we reverse.1
An insurer's duty to defend its insured is "exceedingly
broad" (Automobile Ins. Co. of Hartford v Cook, 7 NY3d 131, 137
[2006] [internal quotation marks and citation omitted]). It is
well settled, however, that an insurer need not provide a defense
when it can "demonstrate that the allegations of the [underlying]
complaint cast that pleading solely and entirely within the
policy exclusions, and, further, that the allegations, in toto,
are subject to no other interpretation" (id.; see Sportsfield
Specialties, Inc. v Twin City Fire Ins. Co., 116 AD3d 1270, 1274
[2014], lv denied 23 NY3d 909 [2014]; J. Lucarelli & Sons, Inc. v
Mountain Val. Indem. Co., 64 AD3d 856, 858 [2009]).
Defendant argues that it has no duty to defend plaintiffs
in the underlying action because Trustco's claim arose out of the
theft and misuse of electronic data stored on plaintiffs'
computer network – a claim that is not covered by the liability
section of plaintiffs' insurance policy. Initially, we note that
1
Although defendant appealed from Supreme Court's order
and not from the subsequent judgment, we will exercise our
discretion to deem the appeal to have been taken from the final
judgment (see CPLR 5520[3]; Feldin v Doty, 45 AD3d 1225, 1226 n
[2007]).
-3- 521419
the nature of the allegations contained in Trustco's complaint is
not in dispute. Indeed, in their own complaint in this action,
plaintiffs agree with defendant that Trustco's claims in the
underlying action are based upon "losses due to the theft and
subsequent misuse of electronic account data and/or electronic
vandalism at certain [of plaintiffs' restaurant] locations." Nor
is there any dispute that the electronically stored cardholder
information at issue in the underlying action qualifies as
"electronic data" under the policy's definition of that term.
Thus, the only remaining question is whether the policy clearly
and unmistakably excludes from coverage third-party damages
flowing from stolen electronic data.
The liability section of plaintiffs' policy provides, as
relevant here, that "[defendant] will pay those sums that
[plaintiffs] become[] legally obligated to pay as damages because
of . . . 'property damage.'" The policy defines "property
damage" as "[p]hysical injury to tangible property . . . or . . .
[l]oss of use of tangible property that is not physically
injured." Crucially, the policy further states that, "[f]or the
purposes of this insurance, electronic data is not tangible
property." Moreover, the policy specifically excludes "[d]amages
arising out of the loss of . . . electronic data." In light of
this unambiguous language, we agree with defendant that Trustco's
claim for damages arising out of plaintiffs' negligent handling
of electronic data is not a claim for "property damage" under the
policy and is excluded from coverage. Accordingly, defendant has
no duty to defend plaintiffs against Trustco (see e.g.
Sportsfield Specialties, Inc. v Twin City Fire Ins. Co., 116 AD3d
at 1274-1275).
Although plaintiffs attempt to avoid this result by arguing
that defendant has a duty to defend based upon provisions of a
separate section of the policy providing coverage for property
damage, the coverage provided under that section is expressly
limited to plaintiffs' claims for "direct physical loss of or
damage to" plaintiffs' own property. Unlike the liability
section of the policy, for which plaintiffs paid a separate
premium, the property damage section contains no language
indicating that it covers the claims of third parties. Thus, the
property damage section of the policy provides only first-party
-4- 521419
coverage for direct damage to plaintiffs' property, a claim not
made by plaintiffs here and, further, one that "does not involve
any need or duty to provide the insured with a legal defense" (14
Plitt et al., Couch on Insurance 3d § 198:3 [2015]; see Great N.
Ins. Co. v Mount Vernon Fire Ins. Co., 92 NY2d 682, 687-688
[1999]; Slattery Skanska, Inc. v American Home Assur. Co., 67
AD3d 1, 11-12 [2009]). In light of our decision, we need not
reach defendant's remaining argument.
Peters, P.J., McCarthy and Lynch, JJ., concur.
ORDERED that the order is reversed, on the law, with costs,
summary judgment in plaintiffs' favor denied, defendant's motion
for summary judgment granted, and complaint dismissed.
ENTER:
Robert D. Mayberger
Clerk of the Court