WI – Breach of Duty to Defend in Lost Videotape Case Despite Definition of Property Damage That Excluded “Electronic Data”
Although Tapes’ Value Was Largely in Their Content, Liberally Construed Claim Also Alleged Loss of Physical Property.
A Wisconsin appellate court, applying Wisconsin law, reversed the circuit court and held that Erie Insurance Company (“Erie”) had a duty to defend Country World Productions, Inc. (“CWP”) in a lawsuit which stemmed from the loss of videotapes. The court found the duty to defend despite the fact that the policy did not provide coverage for “electronic data,” holding that the videotapes themselves were physical property and, therefore, the complaint alleged a covered claim.
The coverage dispute stems from an agreement between CWP and Country World Media Group, Inc. (“Media”) in which CWP agreed to store items “including but not limited to television show tapes, cookbooks and videos,” in a space CWP rented. At some point, Media’s property was inadvertently thrown away. Media filed a lawsuit against CWP alleging breach of contract and negligence. The complaint alleged that, as a result of CWP’s conduct, Media had “sustained damages equal to the value of the Property which will be determined at the time of trial.” During the relevant time period, Erie insured CWP under a commercial general liability insurance policy. CWP informed Erie of Media’s lawsuit and sought a defense. Erie denied coverage and informed CWP that it would not answer the lawsuit on CWP’s behalf. Erie answered Media’s complaint on its own behalf and asserted a cross-claim/counterclaim for declaratory judgment against all parties alleging that it had no duty to defend or indemnify CWP. Erie asserted that its policy did not provide coverage for Media’s claims against CWP because “Media’s complaint alleged a loss of ‘electronic data,’ which the Erie policy expressly excluded from its definition of the term ‘property damage.’” CWP and Erie filed cross motions for summary judgment regarding the coverage issue. Meanwhile, CWP and Media settled the underlying dispute. The circuit court held that Erie’s policy did not give rise to a duty to defend CWP against Media’s claims because the policy “was clearly written to exclude claims for property damage related to electronic data.” CWP appealed.
The appellate court found that Erie’s policy provided an initial grant coverage for property damage, but that property damage was defined to not include electronic data. Erie argued that it had no duty to defend because “the essence of Media’s claim for property damages is the loss of the ideas and concepts which are intangible property.” The appellate court agreed with Erie that Media’s claim included loss of the ideas and concepts found on the tapes; however, the appellate court found that when liberally construed, the allegations in Media’s complaint also sought to recover for the loss of the physical tapes themselves. Under Wisconsin law, if the policy “provides coverage for a least one of the claims in the underlying suit, the insurer has a duty to defend its insured on all the claims alleged in the entire suit.” According to the appellate court, “[t]he loss of the physical tapes constitutes property damage, as the policy defines that term, and is therefore covered.” The court concluded that because Erie’s policy covered claims for damage to tangible property, Erie had a duty to defend CWP against all of the allegations in Media’s complaint, and by refusing to defend, Erie breached its duty. Country World Media Group, Inc. v. Erie Insurance Company, Appeal No. 2016AP1343 (Wis. Ct. App. May 2, 2017).