Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Ltd. v. The Hanover Insurance Co.

United States District Court, S.D. Texas, Houston Division

July 23, 2019

Spec's Family Partners, Ltd., Plaintiff,
v.
The Hanover Insurance Company, Defendant.

          MEMORANDUM OPINION AND ORDER

          Gray H. Miller Senior United States District Judge

         Pending before the court is plaintiff Spec's Family Partners, Ltd.'s (“Spec's”) motion for partial summary judgment (Dkt. 63) and defendant Hanover Insurance Company's (“Hanover”) cross-motion for partial summary judgment (Dkt. 65). Also pending before the court is: (1) Hanover's request for judicial notice (Dkt. 68) and Spec's responsive motion to strike (Dkt. 71); and (2) Hanover's motion for leave to submit supplemental authority (Dkt. 77). Having considered the motions, responses, replies, and applicable law, the court is of the opinion that Spec's motion for partial summary judgment (Dkt. 63) should be GRANTED IN PART and DENIED IN PART. Hanover's motion for partial summary judgment (Dkt. 65) should be DENIED. Hanover's request for judicial notice (Dkt. 68), Spec's motion to strike (Dkt. 71), and Hanover's motion for leave to file supplemental authority (Dkt. 77) should all be DENIED AS MOOT.

         I. Background

         This is an insurance dispute concerning Spec's claim for coverage following two data breaches of Spec's credit card payment system. Dkt. 6 at 2.

         A. The Breach and Underlying Claim

         The central facts of this case are not in dispute. Spec's is a family-owned retail chain. Id. Spec's accepts payments from customers using Visa or MasterCard through a third-party transaction service provided by First Data Merchant Services, LLC (“First Data”). Id. In 2001, Spec's entered into a contract with EFS National Bank for credit card transaction services (the “Merchant Agreement”). Id. First Data is the successor to EFS National Bank in the Merchant Agreement. Dkt. 6 at 2.

         Between October 2012 and February 2014, Spec's credit card payment system suffered from two data breaches, resulting in the loss of customer information and credit card numbers. Dkt. 6 at 2. Visa and MasterCard demanded that First Data pay “liability assessments” to cover the resultant damages. Dkt. 63 at 11. In December 2013, to cover these liability assessments, First Data sent a demand letter to Spec's for about $7.6 million. Dkt. 64-3 at 21-22. The letter also alleged that Spec's was “non compliant with the Payment Card Industry Data Security (PCIDSS) requirements” and demanded that Spec's upgrade its security. Id. In March 2015, First Data sent a second demand letter for an additional $1.9 million. Dkt. 64-3 at 24-25. Altogether, between December 2013 and March 2015, First Data demanded that Spec's pay over $9.5 million, make significant changes to Spec's security systems, and provide First Data with extensive documentation (collectively, the “Underlying Claim”). Dkt. 64-3 at 21-25. Further, to satisfy its demands, First Data incrementally withheld an alleged $4.2 million from Spec's daily payment card settlements and placed the funds in a “Reserve Account.” Dkt. 63 at 12. Spec's did not consent to this withholding and First Data did not file suit or otherwise establish its right to the withheld funds. Id.

         B. The Policy

         Hanover issued an insurance policy to Spec's for the period between October 28, 2013 to October 28, 2014 (the “Policy”). Dkts. 64-2, 64-3. The Policy provides that Hanover has a duty to defend against “Claims” made against Spec's. The relevant provisions read:

1. Defense of Claims:
We have the right and duty to defend “Claims, ” even if the allegations in such “Claims” are groundless, false or fraudulent. We have no duty to defend “Claims” or pay related “Defense Expenses” for “Claims to which this insurance does not apply.” Dkt. 64-2 at 15.
2. Definition of Claim [A] “Claim” means: (1) Any written demand presented for monetary “Damages” or non-monetary relief for a “Wrongful Act”; or (2) Any complaint or similar pleading initiating a judicial, civil, administrative, regulatory, alternative dispute, or arbitration proceeding, including any appeal resulting from it, to which an “Insured” is provided notice and which subjects an “Insured” to a binding adjudication of liability for monetary or non-monetary relief for a “Wrongful Act . . . .”

Dkt. 64-2 at 26-27. The Policy also contains the following exclusion which precludes coverage for claims based upon a contract:

N. ‘Loss' on account of any ‘Claim' made against any ‘Insured' directly or indirectly based upon, arising out of, or attributable to any actual or alleged liability under a written or oral contract or agreement. However, this exclusion does not apply to your liability that would have attached in the absence of such contract or agreement.

Dkt. 64-2 at 30 (“Exclusion N”).

         C. The Parties' Defense Funding Agreement and the Tennessee Litigation

         On April 8, 2014, Spec's notified Hanover of First Data's December 2013 demand letter. Dkt. 6 at 2-3; Dkt. 19 at 15. Hanover and Spec's engaged in a series of exchanges regarding Hanover's duty to defend. Dkt. 6 at 2-3. Ultimately, on November 2014, Hanover and Spec's entered into a Defense Funding Agreement (“DFA”) in which Hanover consented to the retention of Haynes and Boone, LLP as defense counsel in litigation regarding the Underlying Claim. Dkt. 64-1 at 4.

         In December 2014, Spec's initiated a lawsuit in United States District Court for the Western District of Tennessee against First Data (the “Tennessee Litigation”). Dkt. 64-1 at 4. Hanover eventually refused to pay the litigation expenses for the Tennessee Litigation. Id. Following the March 2015 demand letter, Spec's again notified Hanover of First Data's claims. Dkt. 63 at 12. However, Hanover continued to refuse to cover expenses for the Tennessee Litigation. Dkt. 64-1 at 5.

         D. The Current Suit

         Spec's then filed suit against Hanover in this court, asserting causes of action for breach of the Policy and breach of the DFA. Dkt. 6 at 5-6. Spec's also sought declaratory judgment on Hanover's duty to defend, damages under Chapter 542 of the Texas Insurance Code, and attorneys' fees. Id. at 6-7. Hanover subsequently moved for judgment on the pleadings. Dkt. 19. The court granted Hanover's motion, holding that First Data's claim against Spec's arose out of the contract between Spec's and First Data and therefore fell within Exclusion N of the Policy. Dkt. 42. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.