AUTO OWNERS INSURANCE COMPANY v. HALO FOUNDATION HELPING ART LIBERATE ORPHANS (2025)

ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

This case involves a charity auction that went awry. Defendant and Counterclaim Plaintiff The Halo Foundation: Helping Art Liberate Orphans (“Halo”) held a remote charity auction during the COVID-19 pandemic to help fund its organization. Halo contracted with Paradise Productions KC, LLC (“Paradise”) to assist with livestreaming the auction. But on the day of the auction, a temporary internet outage at Paradise's production studio caused a problem with the auction livestream. This issue hindered the bidding process, leading Halo to raise less money than they expected.

Halo now seeks to recover its losses from Paradise's insurer, Plaintiff and Counterclaim Defendant Auto-Owners Insurance Company (“Auto-Owners”). Auto-Owners filed this declaratory judgment action to determine whether the policy it issued to Paradise covers Halo's losses. Halo then countersued here, seeking a declaration that coverage exists.

Now before the Court are: (1) Auto-Owners' Motion for Summary Judgment, ECF No. 21; and (2) Halo's Cross-Motion for Summary Judgment, ECF No. 23. The parties have already stipulated to the damages amount if coverage exists, so the Court's decision on these cross-motions will end this litigation.

The Court holds that, even if the loss of use of property provision applied, the undisputed material facts demonstrate that the electronic data exclusion bars recovery. Since the policy does not cover losses under the undisputed facts, the Court finds that Auto-Owners is entitled to judgment as a matter of law. Accordingly, Auto-Owners' Motion for Summary Judgment (ECF No. 21) is GRANTED, and Halo's Motion for Summary Judgment (ECF No. 23) is DENIED.

Standard

A movant is entitled to summary judgment if it “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Material facts are those facts “that might affect the outcome of the suit under the governing law,” and a genuine dispute over material facts is one “such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A court makes this determination by viewing the facts in the light most favorable to the nonmoving party and drawing all reasonable inferences in that party's favor. Tolan v. Cotton, 572 U.S. 650, 656, 134 S.Ct. 1861, 188 L.Ed.2d 895 (2014). Here, that party is Halo. See Crain v. Crain, 72 F.4th 269, 279 (8th Cir. 2023).

“In reaching its decision, a court should not weigh the evidence, make credibility determinations, or attempt to determine the truth of the matter.” Leonetti's Frozen Foods, Inc. v. Rew Mktg., Inc., 887 F.3d 438, 442 (8th Cir. 2018). To survive summary judgment, the nonmoving party must substantiate its allegations with “sufficient probative evidence that would permit a finding in [its] favor based on more than mere speculation, conjecture, or fantasy.” Mann v. Yarnell, 497 F.3d 822, 825 (8th Cir. 2007) (internal quotations and citations omitted).

Undisputed Material Facts

To resolve the motion, the Court must first determine the material undisputed facts. The following facts are drawn heavily from the stipulated facts filed contemporaneously with the summary judgment briefing, ECF No. 20, and they are also supplemented by some undisputed facts from the summary judgment briefing. The Court has excluded legal conclusions, argument presented as fact, and proposed facts not properly supported by the record or admissible evidence. See Fed. R. Civ. P. 56(c); L.R. 56.1(a). Improperly controverted facts have also been excluded from the record. See id.

Halo is a non-profit organization that provides housing, healing, and education to homeless and at-risk children around the world. Halo relies on fundraising events to meet its capital budget and operating expenses. One such event is the annual Halo Art Auction (“Art Auction”). For the 2022 edition of the Art Auction, Halo opted to hold it remotely because of the ongoing COVID-19 pandemic. Halo tapped Paradise to assist in the production and livestreaming for the event.

The plan for the event was to send out a livestream of the entertainment and auction items, so the Art Auction Attendees (“Attendees”) could view it while simultaneously bidding through fundraising software. Halo contracted with Qtego Fundraising Services (“Qtego”) to provide the bidding software. Qtego's software allows bidders to watch the livestream of the production on the top half of the screen of the bidder's electronic device, while bidding on live auction items on the bottom half of the screen.

The livestream entertainment and auction items were provided through an electronic YouTube weblink. But to ensure that Qtego had sufficient time to sync its bidding software with the entertainment and auction items, Qtego required the link to be sent to Qtego at least twenty-four hours before the event. Three days before the Art Auction, Paradise sent the YouTube livestreaming link to Qtego. Starting that same day, the link was posted on websites and social media, and it was also emailed to celebrities, musical performers, the press, and the Attendees.

On the day of the event, the Qtego software and livestream link were working successfully during a rehearsal a few hours before the starting time. Around five minutes before the event was to begin, Paradise was told that the livestream link could not be viewed by the Attendees. At this same time, Halo employees located at the Paradise production studio were unable to access the internet on their personal devices.

Paradise started troubleshooting. Paradise discovered that although the Qtego software was still running, the software had lost its handshake—i.e., digital connection—with the YouTube link because the link had gone down. Qtego required the handshake to facilitate the auction bidding with the YouTube livestream. After Paradise's information technology provider determined there were no hardware problems, Paradise tried to reestablish the handshake between the YouTube livestreaming link and the Qtego software. But it was unable to do so because the YouTube link was broken. And there was not sufficient time for Paradise to create a new YouTube link, send it to Qtego for the syncing process, and then send it out to the Attendees again.

Halo then tried to improvise. It used Facebook Live to livestream the event to any of the Attendees who happened to be on Facebook. The Attendees were still able to bid on silent auction items, even if they could not view the event through Facebook Live. But unlike the original plans, the Attendees could not use the Qtego software to watch the livestream while also bidding on the live auction items on the same screen. In the end, the amount of bidding and money raised was substantially lower than what Halo had expected.

A later investigation determined that the YouTube link had broken because the AT&T internet at Paradise's studio had momentarily gone out. The investigation also found that nothing tangible or physical in Paradise's studio became inoperable or unusable at any time.

It is undisputed that the issues with the livestreaming link did not cause the Attendee's physical devices to become inoperable or unusable. The only thing the devices could not do was view the auction on the specific YouTube livestream link that was synced with the Qtego software. The Attendees' devices—i.e., phones, computers, etc.—could still be used for other functions. The devices could not access the livestream as originally planned because it had gone down.

The parties also agree that the YouTube link, YouTube livestream, the Qtego software, and the handshake between YouTube and the Qtego software were all intangible electronic data. That electronic data is code or electronic information that is created, stored, or transmitted to or from computer software or applications. This data cannot be touched. Likewise, the prerecorded auction video files and other content that was broadcast to the Attendees on the night of the Art Auction were also intangible.

This lawsuit arises from a settlement between Halo, Paradise, and Auto-Owners regarding the Art Auction. The parties agreed to have Auto-Owners file this case to determine whether coverage existed under a commercial insurance policy issued by Auto-Owners to Paradise. If the Court finds coverage, Auto-Owners has agreed to pay Halo $425,000.

The at issue policy contains the following relevant provisions:

2. Exclusions

This insurance does not apply to:

․

p. Electronic Data

Damages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data. However, this exclusion does not apply to liability for damages because of “bodily injury”. As used in this exclusion, electronic data means information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMs, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment.

ECF No. 1-1 at 125, 128.

Discussion

The cross-motions repeat the same arguments for why each party is entitled to summary judgment. Auto-Owners contends there is no coverage under the policy because Halo has only shown loss of use of intangible property, and even assuming there is coverage, several exclusions bar recovery here. Halo argues that there is coverage because they sustained damages from loss of use of tangible property—i.e., the Attendees were unable to use their electronic devices to bid—and Auto-Owners has not shown that any exclusion applies.

The parties agree that Missouri substantive law governs this dispute. In an insurance dispute, “the insured has the burden of proving coverage, and the insurer has the burden of proving that an exclusion applies.” Axis Surplus Ins. Co. v. TriStar Cos., LLC, 94 F.4th 767, 769 (8th Cir. 2024) (internal quotation marks omitted). But where, as here, an exclusion applies, the Court can skip to that portion of the analysis. See Brake Landscaping & Lawncare, Inc. v. Hawkeye-Sec. Ins. Co., 625 F.3d 1019, 1022 n.3 (8th Cir. 2010); see also Lambi v. Am. Fam. Mut. Ins. Co., 498 F. App'x 655, 656 (8th Cir. 2013). Under Missouri law, the “general rules of contract interpretation govern the interpretation of insurance policies.” See Rossi v. Arch Ins. Co., 60 F.4th 1189, 1194 (8th Cir. 2023). “Missouri courts strictly construe exclusionary clauses against the insurer.” Elec. Power Sys. Int'l, Inc. v. Zurich Am. Ins. Co., 880 F.3d 1007, 1009 (8th Cir. 2018). But “[i]f the policy language is clear and unambiguous, it must be construed as written.” Axis Surplus Ins. Co., 94 F.4th at 769 (internal quotation marks omitted).

The relevant exclusion here concerns electronic data. That provision precludes coverage for “[d]amages arising out of the loss of, loss of use of, damage to, corruption of, inability to access, or inability to manipulate electronic data.” ECF No. 1-1 at 128. The policy further defines “electronic data” 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, hard or floppy disks, CD-ROMs, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled equipment.” Id.

The plain and unambiguous language of this exclusion bars coverage. Missouri law defines the terms “arising out of” as “a very broad, general and comprehensive phrase meaning originating from or having its origins in or growing out of or flowing from.” Capitol Indem. Corp. v. 1405 Assocs., Inc., 340 F.3d 547, 550 (8th Cir. 2003) (internal quotation marks omitted). Under this broad definition, there only needs to be a “minimal causal connection or incidental relationship.” Spirtas Co. v. Fed. Ins. Co., 521 F.3d 833, 836 (8th Cir. 2008) (internal quotation marks omitted).

There is a sufficient causal connection here the between “loss of use of,” “inability to access,” or “inability to manipulate electronic data” and the “damages” Halo allegedly sustained. It is undisputed that the YouTube link, YouTube livestream, Qtego software, and the handshake between YouTube and the Qtego bidding software were all intangible electronic data. It is further undisputed that this data was intended to be transmitted to or from computer software. And that when the intangible internet connection went out, Halo and the Attendees lost access to this electronic data on their phones or electronic devices. The lack of access to this data then resulted in Halo suffering the alleged damages of decreased bids and/or donations.

Halo resists this conclusion on factual and policy grounds. On the factual front, Halo argues the Attendees did not lose access to electronic data; rather, they lost use of their phones or other electronic devices when the internet went out at Paradise's facility. On the policy front, Halo contends that the point of a general commercial liability policy is meant to insure against unexpected events, and the purpose of the policy is thwarted by excluding coverage here.

Halo's first argument employs creative framing but lacks factual support. It is undisputed that the Attendees' phones and devices never stopped functioning or became inoperable. Instead, the Attendees lost access to the YouTube livestream link and a portion of the Qtego bidding software that was supposed to work in conjunction with the livestream. And that lack of access to this electronic data on their phones or other devices is what led to Halo's damages.

Halo's policy argument also fails. To be sure, “Missouri courts have stated that the purpose of commercial general liability policies is to protect against the unpredictable and potentially unlimited liability that can result from accidentally causing injury to other persons or their property.” Secura Ins. v. Horizon Plumbing, Inc., 670 F.3d 857, 862 (8th Cir. 2012).¹ But the general purpose behind this type of insurance cannot be used to override the plain, unambiguous, and specific policy language excluding coverage. See Axis Surplus Ins. Co., 94 F.4th at 769 (“policy must be enforced as written.”). And while Halo understandably wishes there were coverage, the application of the exclusion here does not—as Halo and Paradise contend—make the policy completely worthless. There are many situations in which there could be coverage under the loss of use provision that is not precluded by the electronic data exclusion. For example, there could be an occurrence at Paradise's facility that prevents them or others on their property from accessing and using their undamaged audiovisual equipment altogether. See, e.g., Lemko Corp. v. Fed. Ins. Co., 70 F. Supp. 3d 905, 915 (N.D. Ill. 2014) (listing similar examples). So this is not a situation where the Court's interpretation of the exclusion “could swallow up the inclusionary provisions of a policy,” United Fire & Cas. Co. v. Titan Contractors Serv., Inc., 751 F.3d 880, 885 (8th Cir. 2014), or where the interpretation renders a provision meaningless, Mt. Hawley Ins. Co. v. City of Richmond Heights, Mo., 92 F.4th 763, 767 (8th Cir. 2024).

Since Auto-Owners has proven that the electronic data exclusion bars coverage here, it is entitled to summary judgment.

Conclusion

For the foregoing reasons, Auto-Owners' Motion for Summary Judgment (ECF No. 21) is GRANTED, and Halo's Motion for Summary Judgment (ECF No. 23) is DENIED.

IT IS SO ORDERED.

FOOTNOTES

1.   In arguing for coverage under the loss of use provision, Halo relies upon Eyeblaster, Inc. v. Fed. Ins. Co., 613 F.3d 797 (8th Cir. 2010). But that case is distinguishable for several reasons. First, it involved a different standard of review because it was at the duty to defend stage where the complaint's allegations control and the duty arises “when any part of the claim against the insured is arguably within the scope of coverage afforded by the policy.” Id. at 805 (concurring in judgment and noting that there was coverage under the Errors and Omissions policy, so the court did not need to address the other provisions); see also Scaglione v. Acceptance Indem. Ins. Co., 75 F.4th 944, 950 (8th Cir. 2023) (noting the analytical differences between a duty to defend and other insurance coverage cases). Second, and more importantly, that case did not include any broad electronic data exclusion like there is here.

GREG KAYS, JUDGE