Far Beyond What Watson and Crick Imagined: Court Finds Improper Disclosure of a Person’s DNA Information Online Was Not Excluded by TCPA Exclusion

On January 6, 2016, the United States District Court for the Southern District of Texas held in Evanston Insurance Co. v. Gene by Gene Ltd., No. 14-cv-01842 (S.D. Tex. Jan. 6, 2016), that an exclusion for unlawful distribution of information only applied to “spam” claims and did not bar coverage for claims that a DNA analysis company wrongfully published personal information online.

Gene by Gene, Ltd. owns and operates familytreedna.com, which permits its users to analyze their genetic information to learn about their ancestry and connect with other users. In May 2014, Michael Cole, for himself and on behalf of others, sued Gene by Gene in the U.S. District Court in Anchorage, Alaska. In the suit, Cole alleged that Gene by Gene violated Alaska’s Genetic Privacy Act, which prohibits the disclosure of a person’s DNA analysis without written and informed consent, by improperly publishing his DNA test results on its website (the Underlying Lawsuit).

Evanston Insurance Company (Evanston) insured Gene by Gene under various professional liability and excess liability insurance policies. Gene by Gene sought a defense and indemnity from Evanston for the Underlying Lawsuit. Citing an exclusion in its policy entitled “Electronic Data and Distribution of Material in Violation of Statutes” (the Exclusion), Evanston declined coverage. In July 2014, Evanston filed a declaratory judgment action seeking a declaration that it was not obligated to defend or indemnify Gene by Gene. In turn, Gene by Gene filed a countersuit alleging breach of contract and seeking a declaration that it was entitled to coverage and defense in the Underlying Lawsuit.

Gene by Gene argued that the Underlying Lawsuit falls under its Advertising Injury and Personal Injury Coverage because the injury arises out of the written publication of material that violates a person’s privacy rights. Evanston maintained that the claim was excluded because it was brought pursuant to a statute that falls under Section C of the Exclusion, which precludes coverage for “any statute, law, rule, ordinance, or regulation that prohibits or limits the sending, transmitting, communication or distribution of information or other material.” Gene by Gene argued that the construction of Section C of the Exclusion is too broad and is unreasonable when considered in the context of the Exclusion as a whole and the entire policy.

The court concluded that the claim in the Underlying Lawsuit falls within the definition of Personal Injury because it includes the publication of material – the DNA analysis – that allegedly violates a person’s right to privacy. Turning to the Exclusion, the court noted that it precludes coverage for a claim based on or arising out of any violation of: (1) the Telephone Consumer Protection Act of 1991 (TCPA); (2) the CAN-SPAM Act of 2003; and (3) “any other statute, law, rule, ordinance, or regulation that prohibits or limits the sending, transmitting, communication or distribution of information or other material.” Gene by Gene argued that Section C of the Exclusion must be read in conjunction with the other sections of the Exclusion that apply to the TCPA and the CAN-SPAM acts, both of which pertain to claims under statutes regulating unsolicited emails, telephone calls or faxes.

The District Court agreed with Gene by Gene and concluded that Evanston’s interpretation of Section C was unreasonable in consideration of the remainder of the Exclusion and ruled that Evanston was obligated to provide coverage under its policies’ Advertising Injury and Personal Injury coverage. The court reasoned:

The District Court found that Evanston’s construction of the Exclusion was unreasonable because it would have rendered illusory the policies’ Advertising Injury coverage (which included claims arising out of the written publication of material that libels or slanders a person) and Personal Injury coverage (which included claims arising out of the written publication of material that violates a person’s right to privacy). The court noted that even if it found Evanston’s construction reasonable, the exclusion would be ambiguous and the court would still be required to apply the alternative reasonable construction favoring the insured.

Tressler Comments

Gene by Gene sends the message to insurers that they may not parse out sections of an exclusion to support a disclaimer of coverage, but rather must consider exclusions in their entirety and in the context of the policy as a whole. As newer industries are created that gather and create private information, underwriters are challenged to consider new risk exposures and claims handlers are challenged in the evaluation of whether coverage is afforded under any ISO or manuscript forms.