Eighth Circuit upholds electronic-data exclusion in virtual auction dispute, handing insurers clear precedent on tech-related coverage denials.
The January 27 decision affirms what insurers have long maintained: when technology fails, these exclusions hold up.
The Helping Art Liberate Orphans Foundation had planned a virtual art auction for 2022. The charity hired Paradise Productions KC to handle the video feed and Qtego Fundraising Services to run the bidding software. Paradise set up a YouTube link for the livestream, which Qtego synced with its bidding platform so attendees could watch and bid from one screen.
Then, minutes before showtime, Paradise's internet connection dropped at its studio. The outage was brief, but it permanently broke the YouTube link. Attendees couldn't see the auction or place bids. HALO scrambled to move everything to Facebook Live, but the video and bidding were out of sync. The charity raised far less than expected.
HALO threatened to sue Paradise for breach of contract and negligence. Paradise, unable to pay, handed over its insurance claim against Auto-Owners Insurance to the foundation. Auto-Owners responded by asking a federal court to declare it had no obligation to cover the losses.
The insurer's general liability policy did cover "property damage," including "loss of use of tangible property that is not physically injured." But it also excluded damages from "loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data."
The policy defined electronic data broadly as "information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, data processing devices or any other media which are used with electronically controlled equipment."
HALO argued that when bidders couldn't access the YouTube stream on their devices, that counted as loss of use of tangible property. The charity also claimed the electronic-data exclusion was ambiguous and that Auto-Owners hadn't proven it applied.
The district court sided with Auto-Owners, granting summary judgment. HALO appealed to the Eighth Circuit.
The appellate court conducted its own independent review, applying the same summary judgment standard as the district court and using Missouri law to determine coverage issues. Under Missouri law, the insured has the burden of proving coverage, while the insurer must prove that an exclusion applies.
Writing for the appellate panel, Circuit Judge Benton found the exclusion unambiguous. Under Missouri law, he noted, the phrase "arising out of" casts a wide net, meaning anything originating from, growing out of, or flowing from the excluded cause. Courts have interpreted it as "a very broad, general and comprehensive phrase."
HALO's losses came from either the broken YouTube link or the internet outage, the court said. Both fit squarely within the policy's definition of electronic data problems: loss of, loss of use of, inability to access, or inability to manipulate electronic data.
The court acknowledged that exclusions should be read strictly against insurers. But when the language is clear, it must be enforced as written. The panel cited recent Missouri precedent emphasizing that policies must be enforced as written when language is clear and unambiguous.
Because the electronic-data exclusion plainly barred coverage, the panel didn't need to weigh in on whether the loss qualified as property damage in the first place. The court noted in a footnote that since the exclusion clearly and unambiguously bars recovery, it need not consider HALO's arguments about the policy's property damage provision.
As businesses increasingly rely on virtual platforms for operations and events, the decision underscores how electronic-data exclusions function when digital tools fail. For insurers, it's validation that these exclusions can withstand challenges even when policyholders frame losses as property damage. For policyholders running virtual events, it's a reminder to check what's actually covered when technology is involved.
