September 10, 2014
Intellectual property insurance is an area fraught with potential risk for insured and their brokers and counsel, starting with the first question to ask when analyzing coverage. At first blush, asking the question “Why is there no potential coverage?” appears counter-intuitive for a policyholder. Exactly the reverse is true. When a policyholder asks the opposite question—“Is there a potential for coverage?”—this reverses the burden of proof that insurers must meet in order to avoid providing a defense. The majority of cases require insurers to defend suits unless they can establish that there is no potential for coverage. In assessing that potential, focus is on the pertinent facts that evidence how liability will attach in the underlying action.
“Insurance brokers often advise clients that they have no coverage, leading them to avoid providing notice to their insurers. This conduct creates a potential malpractice claim against the insurance broker.”
My firm has worked on two recent cases with insurers where the insurance broker did not advise their insureds that, while there was an exclusion for “infringement of copyright,” there was either an express or implicit exception to that exclusion for “infringement of copyright in your ‘advertisement.’” So understood, the asserted claims clearly implicated coverage for these developers’ plan elevations which were displayed on their websites, thereby alleging infringement of copyright in the insured’s advertisement.
The same problematic advice received from the insureds’ brokers led them to avoid notifying their insureds that their independent Directors & Officers insurance policies might be implicated. In each instance, the initial complaint did not identify an individual defendant. Thus, when notice was provided to the insurer, they denied coverage. An amended complaint, however, did identify an individual defendant, triggering D&O coverage and falling outside the otherwise applicable infringement of copyright exclusion in the D&O policy. No notice, however, was given by the broker to the insurer asking the insurer to revisit their denial, as the broker was not kept in the loop and asked to provide notice of every amended complaint.
In another case, the insurance broker, who was a captive agent of the insurer, claimed that there was no official notice until a formal claim in a copyright infringement action was submitted. The insurer’s attempt to avoid pre-tender claims was foiled where coverage counsel acknowledged the problematic construction of the notice provisions and the captive broker’s insistence that formal notice of the claim be submitted.
In each case, defense counsel needs to coordinate with coverage counsel. Insurance coverage counsel needs to be in the loop to ensure that proper information about the status of the suit and the nature of the claims triggering potential coverage be communicated to the insurer on the insured’s behalf. Defense counsel also needs to coordinate with coverage counsel in these cases.
Professional liability can attend the pursuit or failure to pursue these IP-related insurance issues.
David will be presenting at the Cleveland, OH and Covington, KY locations of The 24th All Ohio Annual Institute on Intellectual Property on September 17 and 18, respectively. On each occasion he will be presenting on professional conduct: iP-related insurance issues. More information about the conference is available here.