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Compaq Computer Corp. v. St. Paul Fire and Marine Insurance Co.9/2/2003
In this insurance-coverage dispute, appellant argues that the district court erred in granting summary judgment to respondent insurance company because the claims made in the class-action suits against appellant allege, at least in part, negligent conduct triggering respondent's duty to defend under its technology-liability insurance policies. Because we conclude the facts in the class-action suits allege intentional conduct, thereby precluding coverage, we affirm.
FACTS
This insurance-coverage dispute arises out of two underlying consumer class-action lawsuits against Compaq Computer Corporation (Compaq): Thurmond v. Compaq Computer Corp., No. 1:99-CV-711 (E.D. Tex.), and Sprung v. Compaq Computer Corp., No. 00-S-909 (D. Colo.). The underlying complaints alleged that Compaq intentionally sold computers that contained defective floppy-diskette controllers (FDCs) and FDC microcodes. According to the complaints, these defective FDCs and FDC microcodes in turn caused the loss of use, corruption, and destruction of data without any prior warning to the user. In Thurmond, the federal district court dismissed the plaintiffs' cause of action under 18 U.S.C. §á1030(g)(D) on federal jurisdictional grounds and declined to exercise supplemental jurisdiction over plaintiffs' remaining state law claims, remanding them for consideration in an appropriate forum. Thurmond v. Compaq Computer Corp., 171 F. Supp. 2d 667, 684 (E.D. Tex. 2001). The federal district court also dismissed the Sprung action.
At issue is the coverage provided under three insuring agreements contained in a package policy that St. Paul Fire and Marine Insurance Company (St. Paul) issued to Compaq. The insuring agreements are the: Technology Errors and Omissions Liability Protection (Tech E&O;; Technology Commercial General Liability Protection (Tech GL); and Technology Umbrella Excess Liability Protection (Tech Umbrella) agreements. Under the Tech E&O;insuring agreement, only loss caused by an "error" is covered. An "error" is defined as "any error, omission, or negligent act." Specifically excluded is coverage for criminal , dishonest, fraudulent, or other "intentionally wrongful act ." The Tech GL insuring agreement covers property damage caused by an "event." An "event" is defined as an "accident," including continuous or repeated exposure to substantially the same general harmful conditions. The Tech GL agreement also provides coverage for any warranty provided with or for a product. Coverage for property damage that the insured "expected or intended" is excluded. The Tech Umbrella insuring agreement mirrors the provisions of the Tech GL insuring agreement, containing the same exclusion for "expected or intended" damage.
After receiving the Thurmond and Sprung complaints, Compaq sought coverage under the package policy issued by St. Paul. In a letter dated November 24, 1999, St.áPaul accepted Compaq's tender of defense in the Thurmond action under a full reservation of rights. However, St. Paul noted that "to the extent it may be shown that Compaq knew of defect and failed to take measures to either correct the problem or issue appropriate warnings, there would be no coverage [because] Compaq's conduct would not constitute an 'error, omission or negligent act.'"
The Thurmond plaintiffs filed five amended complaints, and the Sprung plaintiffs filed one. On September 5, 2000, after reviewing the second and third amended complaints in the Thurmond action and the amended complaint in the Sprung action, St.áPaul notified Compaq that the claims being made in both class actions were not covered, and also notified Compaq of its intent to withdraw from the defense. St. Paul's denial th
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