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Hulu Sued By Insurance Company Over Privacy Violation Claims

Online video hub is facing a class action that alleges substantial damages for the alleged use of "zombie cookies" and won't get any immediate assistance from its insurer.

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It's often said that the law has trouble keeping up with new technology, but perhaps it's also the case that insurance has trouble keeping up with new law.

On Wednesday, Hulu was sued by its insurer, Hartford Casualty Insurance Company, which is seeking a confirmation that it doesn't have to provide coverage on claims that Hulu is violating consumer privacy by tracking users' online activity with cookies and other identifiers on users' computers. At issue in the insurer's lawsuit is whether insurance concepts like "bodily injury" and "property damage" apply to the alleged harm that entertainment fans experience when watching their favorite TV shows and movies online.

For the past few years, Hulu and other big media companies have been fighting class action claims over so-called "zombie cookies," which re-spawn even when users clear their Internet browsers of data files. Last year, Hulu suspended use of the tracking technology, but the plaintiffs in that litigation demand damages for those who visited Hulu during the middle six months of last year. In February, several class actions against Hulu were consolidated by a California judge.

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Hulu wanted Hartford Casualty to provide coverage on these claims, but the insurer rejected the demands, saying it has no obligation to defend the lawsuit on Hulu's behalf, nor to reimburse the company for legal expenses, nor to settle the claims, nor to pay any judgment.

Hartford Casualty points to the general liability coverage with a $2 million limit, and umbrella coverage policies with a $10 million limit, which Hulu got in 2009.

The general liability coverage insured against "bodily injury and property damage."

"Bodily injury" was defined in the agreement as a physical injury, sickness, or disease. The policy excluded expected or intended injuries, damage to impaired property not physically injured (such as a "defect" in the product), and damages to electronic data.

The coverage also insured against "personal and advertising injury," which explicitly indemnified Hulu against claims including false arrest; malicious prosecution; wrongful eviction; defamation; "Oraì, written or electronic publication of material that violates a person’s right of privacy; copyright infringement; "Discrimination or humiliation that results in injury to the feelings or reputation of a natural person."

Hartford Casualty says that by the meaning of the policies, "bodily injury," "property damage," and "personal and advertising injury" don't apply to what the plaintiffs in the class action are alleging. The insurer also says that there's no coverage for litigation expenses, criminal acts, injunctive relief and statutory damages.

Of late, other companies are struggling to figure out whether "personal and advertising injury" insurance covers issues like publicity and privacy right disputes in new media.

This latest case could get expensive for Hulu if the company loses big. The plaintiffs in the class action are estimating the cost of "remediating" each computer that was injured by the zombie cookies to be between $500 to $1000. According to comScore, Hulu had 27.5 million unique visitors in March 2011, the alleged beginning of the disputed tracking program.

We've reached out to Hulu and will update if we hear anything.

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner