NCFB v. Lanier Law Group: Much Activity, But No Progress for “Coverage B” Insurance Law

By Susan H. Boyles

The North Carolina Supreme Court recently missed an opportunity to write a meaty opinion on insurance policies’ “Coverage B” provisions that insurance practitioners regularly debate. In North Carolina Farm Bureau Mut. Ins. Co. v. Lanier Law Group, P.A., 277 N.C. App. 605, 861 S.E.2d 565 (2021), aff’d per curiam, __ N.C. __, 898 S.E.2d 279 (2024) (“Lanier”), the parties ably teed up multiple issues of first impression involving Coverage B of an excess business liability policy. However, instead of addressing the issues head-on, the Court voted 3-3 to affirm an unsatisfying ruling from the Court of Appeals based on a single exclusion, thereby setting no precedent and giving no guidance for future disputes involving Coverage B.

The central question in Lanier was whether a law firm’s excess business policy liability obligated an insurer to defend against allegations that the firm violated the Driver’s Privacy Protection Act of 1994, 18 U.S.C., § 2721 et seq. (“DPPA”). Lanier Law Group (“LLG”), a firm focused on plaintiffs’ personal injury cases, was one of many firms in the state that culled accident reports and used the information they collected to contact potential clients (i.e., accident victims) about legal services through direct mail. In 2016, LLG and other firms were named as defendants in a putative class-action lawsuit in the Middle District of North Carolina. Garey v. James S. Farrin, Case No. 1:16-cv-00542-LCB-JLW (“Garey”). The Garey plaintiffs alleged that the law firm defendants obtained and used their “protected personal information” without their consent. Fundamental to the plaintiffs’ claims was the allegation that LLG “knowingly” violated the statute. The Garey complaint was replete with allegations that LLG “knowingly obtained, disclosed and used Plaintiffs’ personal information from a motor vehicle record” in violation of the DPPA. Lanier, 277 N.C. App. at 606-07, 861 S.E.2d at 566-67.

LLG and its principal, Lisa Lanier, notified their insurers of the lawsuit and requested a defense and indemnity under multiple policies. North Carolina Farm Bureau Mutual Insurance Company (“NCFB”), which had issued primary and excess policies to LLG, agreed to defend under a reservation of rights. However, a few months later, NCFB filed a declaratory judgment action in Guilford County Superior Court in which it asked to be relieved of its duty to defend. In 2017, the parties filed cross-motions for summary judgment. A hearing on those motions was delayed because the case was stayed for nearly two years. But on June 28, 2019, Judge Susan Bray ruled that NCFB did not have a duty to defend. LLG appealed to the Court of Appeals. Id. at 608, 861 S.E.2d at 567.

On June 1, 2021, Judge Tyson, writing for a unanimous three-judge panel, affirmed the trial court’s ruling. Id. at 613-14, 861 S.E.2d at 570-71. Pursuant to the parties’ agreement, the only policy at issue was LLG’s business excess policy issued by NCFB. Id. at 612, 861 S.E.2d at 569. The court’s opinion contained no discussion about the insuring provisions of Coverage B; rather, the court jumped straight to the exclusions and focused solely on the exclusion for willful violation of a criminal statute. The court framed the dispositive issue as “whether the plaintiff’s allegations of ‘knowingly’ violating the DPPA in Garey has the same meaning as ‘willfully’ doing so.” Id. at 613, 861 S.E.2d at 570.

The relevant exclusion read:

2. Exclusions

This insurance does not apply to:

a. “Personal injury” or “advertising injury”

…

(4)    Arising out of the willful violation of a penal statute or ordinance committed by or with the consent of the insured.

Id. at 612, 861 S.E.2d at 570. The NCFB policy did not define either “knowingly” or “willfully,” so the court looked to dictionary definitions to interpret those terms. Citing to Webster’s New World College Dictionary (5th ed. 2014), the court found that the words “carry essentially the same or equivalent meanings.”

We conclude that the words “willful” and “knowing” carry essentially the same or equivalent meanings. An allegation of a “knowing” violation of the DPPA is an allegation of a “willful” violation of the DPPA. The injury alleged in the underlying complaint, which is based upon Defendants having “knowingly obtained, disclosed and used Plaintiffs’ personal information from a motor vehicle record in violation of the DPPA,” is injury arising out of the “willful” violation of a penal statute and that violation is excluded from coverage under the plain terms of the policy.

Id. at 613, 861 S.E.2d at 570. The court concluded that NCFB had no duty to defend.

The opinion is a quick read – the entire decision encompasses only seven printed pages (including headnotes) and 41 numbered paragraphs. The majority of the decision is devoted to explaining the procedural history of the case, the summary judgment standard and rules of construction for insurance policies. The portion of the opinion discussing the “willful violation of a criminal statute” exclusion consists of eight numbered paragraphs spanning slightly more than one printed page.

In July 2021, LLG filed a petition for discretionary review with the North Carolina Supreme Court. While that petition was pending, NCFB withdrew from the defense of LLG on August 31, 2021. (NCFB’s New Br. on Issues Raised by Conditional Pet. for Disc. Rev., n. 1.) After that, LLG presumably had to start paying its own legal fees in the Garey case. Its counsel trudged ahead in defending the case and won. On January 22, 2021, Judge Biggs entered summary judgment for LLG (and other defendant law firms) on the DPPA claims. Garey, 514 F.Supp.3d 784 (M.D.N.C. 2021). The court found that the type of information that LLG obtained from the accident reports and the way in which LLG obtained it did not violate the DPPA. Id. at 796 (“[I]t is undisputed that Defendants obtained the names and addresses of Plaintiffs from DMV-349 accident reports created by state and city police officers. Defendants either obtained these reports directly from a local law enforcement office, or they subscribed to third-party services that aggregated crash records. There are no allegations that the accident reports are ‘motor vehicle records’ under the DPPA nor that the personal information was obtained from a search of a DMV database.”) The court held that the law firms’ “conduct thus fell outside the ambit of the DPPA” and granted defendants’ motions for summary judgment.  Id.

On June 3, 2022, the Fourth Circuit Court of Appeals affirmed that ruling, albeit on narrower grounds. Garey v. James S. Farrin, P.C., 35 F.4th 917 (4th Cir. 2022). The appellate court’s holding rested solely on the fact that the DPPA did not apply because LLG obtained plaintiffs’ personal information from accident reports – not from licenses or DMV databases. Id. at 929.

The litigation could have ended there, with both parties able to claim a win. LLG had defeated the Garey plaintiffs’ claims and had gotten NCFB to pay its legal fees through all of the trial court proceedings and partway through the appeal.[1] LLG’s need for a defense ended in June 2022, and NCFB had already gone on record as saying it would not seek recoupment for the defense costs. Lanier, 277 N.C. App. at 608, 861 S.E.2d at 567. For its part, NCFB had obtained a ruling from the Court of Appeals that it had no duty to defend DPPA claims under Coverage B of an excess business policy.

But there was still one loose end – the Supreme Court had not yet ruled on LLG’s petition for discretionary review. On April 4, 2023 – nearly two years after the petition was filed and nearly a year after the Garey case ended – the Supreme Court agreed to hear the insurance coverage dispute.

Not only did LLG succeed in getting the Supreme Court to review the short, fairly pedestrian, unanimous ruling from the Court of Appeals, but it also persuaded the Court to expand the scope of its review to the other provisions of Coverage B. Each party submitted two sets of briefs: 1) briefing on the “willful violation of a criminal statute” exclusion that the Court of Appeals relied on to find that NCFB did not have a duty to defend and 2) briefing on the insuring provisions of Coverage B and other exclusions. The issues before the Court were:

• Whether the claim in the Garey case constituted a covered offense that qualified as an “advertising injury” under Coverage B?  Specifically,
  • Did the Garey case allege “publication of material that violates a person’s right of privacy”?
  • Did LLG’s sending the direct marketing material to the plaintiffs constitute “publication”?
  • Did the Garey case allege the offense of “invasion of privacy by intrusion into seclusion”?
  • Did the Garey case allege the offense of “invasion of privacy by public disclosure of private facts”?
• Whether the professional liability exclusion applied to disclaim coverage?
• As to the “willful violation of a criminal statute” exclusion, whether there is a difference between an insured’s “knowing” use of information and “willful violation” of a penal statute?

Given the relative dearth of case law in North Carolina on Coverage B, this case appeared to be exactly what insurance practitioners were looking for. It had all the hallmarks of a significant ruling in the making – one that insurance litigators could look to whenever they were faced with Coverage B issues. This case had been working its way through the court system since 2016. Surely, after eight years of litigation and the Supreme Court granting review on a myriad of issues, something “big” should be coming down the pike.

But it didn’t work out that way. In a per curiam one-paragraph decision filed on March 22, 2024, the Supreme Court voted 3-3 to affirm the decision of the Court of Appeals. Lanier, ___ N.C. ___, 898 S.E.2d 279. The lack of a majority was caused by Justice Richard Dietz’s decision not to participate in the case. Id. In 2021, then-Judge Dietz was on the Court of Appeals panel that heard the case and issued the opinion in NCFB’s favor. In 2024, the case appeared on the docket of the Supreme Court, which now included Justice Dietz. His choice not to be involved in the case again led to the 3-3 split, such that the decision affects only the parties to this case and has no precedential value in other matters. Id. (“[T]he decision of the Court of Appeals is left undisturbed and stands without precedential value.”)

But even more disappointing is the fact that the Court did not consider some of the Coverage B issues that cross insurance litigators’ desks every day. Both the Supreme Court and the Court of Appeals focused narrowly on the “willful violation of a criminal statute” exclusion without even discussing whether LLG had satisfied the conditions to invoke the insuring provisions of Coverage B in the first place. LLG argued in its briefs that, by looking at the exclusion only, the Court of Appeals had impliedly held that the claims constituted a covered offense under the definition of “advertising injury” under Coverage B. Obviously, NCFB contended otherwise.

The courts failed to apply the basics of insurance coverage analysis – i.e., the insured has the burden of bringing itself within the coverage provisions of the policy, and the insurer has the burden of showing that an exclusion applies. The courts had the chance to tackle policy interpretation issues that would define “advertising injury” – such as the meaning of “publication,” “invasion of privacy by intrusion into seclusion,” and “invasion of privacy by public disclosure of private facts.” Instead of methodically stepping through the insuring provisions and definitions in the policy, the courts leap-frogged over them and seized on a single exclusion to decide the case. This standalone discussion of the “willful violation of a criminal statute” exclusion is certainly an anomaly among insurance decisions.

The courts also did not address the “professional liability” exclusion in the insurance policy. This is particularly disappointing, given the frequency with which insurers cite this exclusion in coverage denial letters. LLG argued that it should not apply because its gathering of information from accident reports did not require any specialized training or knowledge – it was a clerical task and not a professional service. NCFB, on the other hand, argued that LLG sent letters only to persons whom it deemed not to be at fault in the accident, and that required some legal analysis. Both sides have valid points, but unfortunately, the courts chose not to address the scope of this standard “professional liability” exclusion.

Despite accepting review of these issues and receiving voluminous briefing on them, the Supreme Court focused on the one policy provision that the Court of Appeals addressed — the “willful violation of criminal statute” exclusion – and even that was decided in the extremely narrow context of a DPPA claim. Further, by the time the Supreme Court issued its decision, the Fourth Circuit had affirmed dismissal of the DPPA claims against LLG (and other law firms), which made the insurance coverage issue even less relevant for future cases. A decision eight years in the making that had the potential to define the confusing landscape of Coverage B ended up causing much activity, but rendering no progress.