Sony Agrees to Settle Lawsuit by Insurer Over Duty to Defend in Breach Litigation

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By Katie W. Johnson

April 30 — Sony has agreed to resolve a lawsuit by an insurer seeking declaratory judgment that it isn't liable to defend the company from class actions by consumers whose personal data were breached in hacking attacks on Sony's PlayStation Network, according to a stipulation discontinuing the action filed April 29 in the New York Supreme Court for the County of New York.

In April 2011, Sony revealed that hackers had breached its PlayStation video gaming and Qriocity streaming music and video networks, exposing the personal information of some 77 million user accounts. Sony later discovered a second, earlier breach that exposed the personal information of some 24.6 million user accounts.

A plethora of consumer class actions soon followed. An insurer that issued a commercial general liability policy to Sony, Zurich American Insurance Co., sued Sony in state court, seeking a declaratory judgment that it wasn't liable to defend the company from the consumer class actions. It also sought a declaratory ruling that it wasn't obligated under an excess liability policy issued to Sony to indemnify the company by paying any share of the possible damages awards from the class actions until any coverage by other insurance companies had been exhausted.

In July 2014, a federal district court preliminarily approved an approximately $19 million class-action settlement resolving the consumer claims (In re Sony Gaming Networks & Customer Data Sec. Breach Litig., No. 3:11-md-02258-AJB-MDD, 2014 BL 193615 (S.D. Cal. July 10, 2014)). A final fairness hearing in that case is scheduled for May 4.

Summary Judgment Ruling for Insurer 

The Sony defendants—Sony Corp. of America, Sony Computer Entertainment America LLC, Sony Network Entertainment International LLC and Daybreak Game Company LLC—executed a written settlement agreement resolving Zurich's lawsuit, according to an April 28 letter to the New York state court from Sony's counsel. Five insurance company defendants also signed the stipulation dismissing the case with prejudice.

Richard DeNatale, a partner with Orrick, Herrington & Sutcliffe LLP in San Francisco who represented Sony, also said in the letter that the appeal of the court's Feb. 21, 2014, summary judgment ruling was withdrawn with agreement of all of the parties.

On Feb. 21, 2014, the court granted summary judgment from the bench in favor of Zurich, finding that there was no coverage under the policy for Sony because a third party, not the policyholder, committed the act of publicizing the information at issue.

Counsel for Zurich and Sony didn't immediately respond to Bloomberg BNA's April 30 request for details on the settlement.

Coughlin Duffy LLP represented Zurich. Orrick, Herrington & Sutcliffe LLP represented the Sony defendants. Nicolaides Fink Thorpe Michaelides Sullivan LLP; Kofman Dolowich & Voluck LLP; Drinker Biddle & Reath LLP; Putney, Twombly, Hall & Hirson LLP; and L'Abbate, Balkan, Colavita & Contini LLP represented the insurance company defendants.

To contact the reporter on this story: Katie W. Johnson in Washington at kjohnson@bna.com

To contact the editor responsible for this story: Donald G. Aplin at daplin@bna.com