Costly Credit Monitoring Won’t Fall to Insurer

CHICAGO (CN) - An accountant's insurer does not have to cover credit monitoring after a robbery exposed the personal information of clients, the 7th Circuit ruled.

While working for Kevin W. Bragee CPA in Illinois, accountant Jeanne Hentz made a compact disc containing the names, birth dates and Social Security numbers of the beneficiaries of three laborer retirement funds.

Hentz left the laptop containing the compact disc in her car, which was parked in front of her home. When the laptop was stolen from her vehicle, fund beneficiaries incurred nearly $200,000 in credit monitoring and insurance expenses.

The funds then sued Hentz to recover the expenses.

Hentz tendered defense of the claims to her homeowner's representatives with Nationwide Insurance Co., but that company in turn filed suit seeking a declaratory judgment that it had no duty to defend or indemnify Hentz.

The insurer insisted that Hentz's losses fell under an "in care of" policy exclusion that bars coverage for "damage to property rented to, occupied or used by or in the care of the insured."

U.S. District Judge J. Phil Gilbert agreed, and the 7th Circuit affirmed Friday.

Hentz's losses met both elements of the "in care of" exclusion, the court found.

First, "the compact disc was stolen when it was in Hentz's exclusive possessory control," Judge Daniel Manion wrote for a three-judge panel.

Second, "because the handling and care of confidential information is vital to Hentz's work as an accountant, the compact disc containing such information is a necessary, rather than incidental, element of her ordinary employment activities."

The appeals court also confirmed that Hentz's loss met a "business exclusion" concerning "property damage arising out of or in connection with a business conducted from an insured location or engaged in by an insured."

"Hentz had a duty to safeguard the confidential information on the compact disc because she was an accountant employed by [Kevin W. Bragee CPA]," Manion wrote. "Hentz's failure to safeguard the compact disc was an omission amounting to a breach of that duty. Therefore, the Policy's 'business' exclusion applies."

Because Nationwide has no duty to defend Hentz against the state action, it also has no duty to indemnify her if she is held liable for damages.

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