On Jan. 12, 2015, the Eleventh Circuit held that the insurers’ knowing-conduct exclusion did not relieve the insurers from their duty to defend a lawsuit against their insureds alleging “willful” violations of the Fair and Accurate Credit Transaction Act (“FACTA”). The court reversed the district court’s holding that this exclusion applied, and remanded the case for the district court to determine whether the policies otherwise provided coverage.
A putative class action was filed against defendants-appellants (the “Car Rental Companies”) in a Missouri district court (the “Galloway Action”). The Galloway Action alleged that the Car Rental Companies had violated 15 U.S.C. § 1681c(g)(1), a provision of the FACTA, that prohibits “print[ing] more than the last five digits of the [credit and/or debit] card number or the expiration date upon any receipt provided to the cardholder.”
Subsequently, plaintiffs-appellees Travelers and St. Paul (collectively, “Insurance Companies”) filed suit in the District Court for the Northern District of Georgia for a declaratory judgment that they were not obligated to defend or indemnify their insureds, the Car Rental Companies, in the Galloway Action. Both the Travelers’ and St. Paul’s policies contained provisions that excluded from coverage personal injury knowingly inflicted by the insured. The district court granted the Insurance Companies motion for summary judgment, finding that the claims in the Galloway action alleged only knowing violations of FACTA, which were excluded from coverage under the policies. The Car Rental Companies appealed.
On appeal, the Eleventh Circuit, applying Georgia law, recognized that “an insurer must provide a defense against any complaint that, if successful, might potentially or arguably fall within the policy’s coverage.” The Galloway Action sought to impose liability on the Car Rental Companies for committing “willful” FACTA violations under § 1681n. According to Supreme Court precedent, “willfulness,” as defined in § 1681n, encompasses not only “knowing” violations, but also those committed in “reckless disregard” of the statute’s requirements. As such, the court found that it did not matter that the Galloway complaint did not use the phrase with “reckless disregard” specifically because the complaint alleged that the Car Rental Companies acted “willfully.” The parties agreed that violations committed with “reckless disregard” were not excluded from coverage. Accordingly, the Eleventh Circuit held that the knowing-conduct exclusion did not relieve the Insurance Companies of their obligation to provide a defense to the Galloway Action if the policies otherwise provided coverage.
Having found the exclusion inapplicable, the court turned to whether the policies provided coverage for the conduct alleged in the Galloway complaint. The parties agreed that based on the policies’ use of the term “publication,” the policies did not cover the provision of violative credit card receipts to the credit card account holder. However, the Car Rental Companies asserted that they accepted payment at the time of rental from the person producing the credit card and provided credit card receipts to the individual returning the car, who may not always be an owner of the credit card account used to pay for the rental. As such, the Car Rental Companies argued their policies provided coverage for any conduct involving providing non-conforming receipts to people other than the credit card account holders. The court found that the Galloway complaint could be read to assert such conduct. As such, the court concluded that the outcome of this case rested entirely on whether § 1681c(g)(1) could impose liability on the Credit Card Companies for providing non-account owners with non-truncated credit card receipts when they returned rental cars.
However, because the district court did not address this issue (having relied on the exclusion to determine that the Insurance Companies did not have a duty to defend), the Eleventh Circuit decided not to decide this issue for the first time on appeal, citing Supreme Court precedent that a federal appellate court generally does not consider an issue not passed on below. Accordingly, the Eleventh Circuit remanded the case to the district court to determine whether § 1681c(g)(1) prohibits vendors from providing non-conforming receipts of credit-card account holders owners to persons other than the account owners.