In 2017, FedEx faced a series of class action lawsuits resulting from the alleged “unmasking” of customers’ credit card numbers on receipts in violation of the Fair and Accurate Credit Transactions Act (FACTA). FedEx submitted a claim to Continental Casualty Company for defense of the FACTA actions under a policy covering FedEx against certain “Professional Services Liability” claims. Continental denied the claim, and FedEx bore approximately $2.3 million in costs defending itself against the FACTA class actions. In FedEx Office and Print Services, Inc. v. Continental Casualty Co., CV 20-4799-MWF (AGRx) (C.D. Cal. Oct. 20, 2020), the court found that Continental improperly denied coverage based on Continental’s erroneous interpretation of “Professional Services.”
FedEx’s business model involves the use of various “kiosks,” or self-service devices, for the provision of copying, scanning, printing, computing, and faxing services, among others. Each kiosk connects to a payment card scanner that requires customers to scan their credit cards to enable the kiosk to function. The scanner tracks statistics relevant to the customer’s use of the kiosk and calculates the charge the customer will be responsible to pay. In 2017, as a result of a software update, the kiosks started printing more credit card digits on customers’ receipts than authorized under the FACTA, leading to the class action lawsuits against FedEx.
The Continental policy covered certain claims arising from a “Wrongful Act” arising out of the performance of “Professional Services,” which were defined as “providing document scanning, storage and retrieval, video conferencing, account management, finishing and faxing services, custom printing and copying services, … document creation, digital printing, … and services related thereto.” The policy defined a “Wrongful Act” as “any actual or alleged act, error, omission, neglect or breach of duty, [or] Privacy Injury … committed solely in the conduct of Professional Services….”
Continental argued that the FACTA actions did not fall within the definition of “Professional Services” because the “event of printing a receipt is not part of ‘the performance of Professional Services.’” Continental cited several cases that differentiated “between the act of providing substantive services unique to a given business, which are covered under ‘professional services’ provisions of insurance policies, and the separate, administrative act of billing, which is common to all businesses, and is not covered.”
The court distinguished those cases, noting that cases interpreting “professional services” policy provisions typically relate to “professional conduct fundamentally different than that at issue here.” In contrast to those cases that frequently involve the provision of legal or medical services, the services here did not involve “the physical or intellectual acts of service one commonly associates with doctors or lawyers,” but rather involves services provided by self-use, multifunction machines that operated only after the customer swiped a card. As a result, the line between the service and the billing function was “blurrier” than that in the cases cited by Continental.
The court held that the cases cited by Continental actually militated in favor of coverage, as they demonstrated that courts will find coverage exists where the insured’s wrongful act results from “a unique risk inherent to its specific professional industry.” Although the FACTA violations involved the act of billing, a function common to many different industries, FedEx’s process of printing receipts from the self-service kiosks was not merely an administrative task, but rather was “an integrated process unique to FedEx’s business model in the performance of providing professional services.” The user’s credit card data was “inextricably intertwined” with the provision of the service itself, resulting in a “unique risk” emanating from FedEx’s business model. As a result, the court held that FedEx was acting in its professional capacity, as defined by the policy, when it printed the receipts from the self-service kiosks. Therefore, according to the court, Continental breached the insurance policy when it denied FedEx’s claim.
In addition, the court noted that Continental did not point to any cases that involved the modifying language, “and services related thereto,” which the court held to “substantially broaden the provision’s scope.”