North Carolina Appellate Court Equates “Knowingly” With “Willful” In Applying Violation Of Penal Statute Exclusion

The North Carolina Court of Appeals held that an insurer had no duty to defend a lawsuit alleging that the insured knowingly violated a federal statute based on a policy exclusion for personal or advertising injury arising out of willful violation of a penal statute. N.C. Farm Bureau Mut. Ins. Co. v. Lanier Law Grp., P.A., No. COA19-926, 2021 N.C. App. LEXIS 261 (Jun 1, 2021).

A class action lawsuit was brought against the insured, a law firm (in addition to other defendants), for use of protected personal information in advertising its legal services in violation of the Driver’s Privacy Protection Act of 1994 (DPPA). The plaintiffs claimed that the insured knowingly obtained, disclosed and used personal information from motor vehicle records without plaintiffs’ consent. The insured tendered the lawsuit, and its insurer defended under a reservation of rights but filed a declaratory judgment action to determine its obligations under the policy. The trial court subsequently granted summary judgment to the insurer, and the insured appealed.

The appellate court observed that the exclusion excluded coverage for certain injuries arising out of the willful violation of a penal statute, but that the relevant allegation in the underlying complaint stated that the insured “knowingly obtained, disclosed and used” the underlying plaintiffs’ information in violation of the DPPA. Looking to common dictionary definitions of “willful” and “knowingly,” the court determined that both were defined as “deliberate,” and further noted that North Carolina courts have used the terms interchangeably in both the criminal and civil context. Accordingly, the court affirmed summary judgment in favor of the insurer.