Delaware Court Concludes Insurer Must Defend Copyright Claims Against Frontier
By David A. Gauntlett*
Introduction
In the recently decided case of Frontier Communications Holdings Inc. v. Indian Harbor Insurance Co.,[1] a Delaware state court rejected the insurer arguments against potential coverage and determined Frontier was owed a defense in the underlying copyright infringement lawsuit. The court’s analysis of the “Deliberate Act” exclusion is particularly noteworthy for properly reinforcing that scienter-based exclusions cannot ordinarily be enforced to preclude an insurer’s duty to defend. Such exclusions are typically only applicable to an insurer’s duty to indemnify following an adjudication of the underlying claims.
Court Rejects Construction That Would Place All Claims Outside Policy Period
In the underlying case, Frontier was sued for copyright infringement by two distinct entities. The first alleged that Frontier customers used Frontier’s internet service to violate the copyrights of several movie studios. The second alleged similar claims based on infringement of record companies’ copyrights. These two sets of claims were aggregated into one case. After being denied potential coverage, Frontier initiated a declaratory judgment coverage lawsuit against its primary insurer and three excess insurers (collectively, the “Insurers”).
The court first analyzes whether both sets of claims are candidates for potential coverage based on the policy’s notice requirements. It quickly rejected Frontier’s wordsmithing arguments that asserted the use of “Declarations Page” rather than “Declaration Page” rendered the acceptable notice period ambiguous. With that dismissed, the bare facts of the case left no room for further argument. Frontier received a demand letter addressing the movie studios’ claims in April 2020, predating the applicable July 1, 2020 to July 1, 2021 policy period.
The Insurers attempted to stretch this conclusion to the record companies’ claims (which were first made in January 2021) by arguing that the two sets of claims were related. They cited a policy provision stating that “[a] claim resulting from a related matter will be treated as a single claim first made against the Insured at the time the first such related matter occurred.” They interpreted this provision to mean that related claims are aggregated for notice purposes, thereby dooming the record companies’ claims based on the failure to properly report the movie studios’ claims.
The court rejected this overreach.
The plain terms of the Policies show that the Insurers’ interpretation is flawed. As discussed, the policies require that a “claim first made against the Insured during the policy period” be noticed “in no event, later than the end of the policy period.”. Hence, it is when a “claim” is made that counts for purposes of timing and notice. Section VI.D states that a claim is made “on the earliest date an executive officer receives the first written demand.” If Section III.C applied to when a claim is deemed made, it would render Section VI.D meaningless.
The court noted that the Insurers’ construction could lead to an absurd result in which “Frontier would be required to provide the Insurers with notice of third-party wrongdoing even if Frontier never received a takedown notice or resulting demand letter.” Citing several cases for the principles that (1) constructions leading to absurd results should be rejected and (2) construction should favor coverage where possible, the court concluded that Frontier had met the notice requirements with regard to the later claims.
Assertion of Exclusions Was Premature
The Plaintiffs in the underlying case asserted claims for contributory infringement (which requires knowledge and material contribution) and vicarious copyright infringement (which requires a direct profit from the illegal activity). Based on these allegations, the Insurers cited the policy’s “Deliberate Acts” and “Personal Profit” exclusions. The former precluded coverage for any “intentional or knowing wrongful . . . acts, errors, or omissions [or] willful violations of the law,” while the latter addressed “the gaining of any profit [to which Frontier was not entitled].” The court rejected both.
As Frontier argued, the “knowledge” requirement of contributory infringement could be proved through a showing of recklessness. The court noted that this undermines the Insurers’ presumption that the “knowing” term in the policy is identical to the “knowledge” standard of contributory infringement. The court concluded that the absence of a final adjudication rendered it impossible to determine whether Frontier acted with the scienter necessary to implicate the “Deliberate Acts” exclusion.
An analogous argument was made for the “Personal Profit” exclusion. Proving a “financial interest” from an illegal activity can be shown by a low standard that would not fall within the exclusions, thus making it premature to determine if the exclusions applied.
The Court Refused to Rewrite Policy in Insurers’ Favor
The court also noted that the Insurers’ arguments to read the “Deliberate Act” exclusion as inherently precluding coverage for copyright infringement was in conflict with both (1) the court’s obligation to read exclusions “narrowly and strictly” in favor of coverage and (2) the Insurers’ related obligation to use readily available language to clarify the intent to exclude certain claims.
The Excess Insurers argue that the only way an internet service provider like Frontier can be found liable for copyright infringement is through contributory infringement or vicarious infringement, and that these claims fall into the Deliberate Acts Exclusion. In essence, the Excess Insurers ask the Court to read in a copyright infringement exclusion in the Policies via the Deliberate Acts Exclusion. But the Policies do not explicitly exclude copyright infringement, even though the Insurers demonstrated that they knew how to exclude other intellectual property rights from coverage. Accordingly, the Court declines to construe the Deliberate Act Exclusion in such a broad fashion.
The court’s adherence to these coverage principles is in accord with a multitude of seminal coverage decisions. For example, in Pension Trust,[2] the Ninth Circuit had to determine whether the underlying action involved an alleged breach of fiduciary duty that triggered Federal's duty to defend.[3] Federal argued for several coverage limitations, including (1) restricting coverage to fiduciary duties arising out of ERISA and other pension-related laws and (2) only covering claims brought by fiduciary beneficiaries.[4]
The court rejected both arguments, noting that the broad language of the policy could not be circumvented via construction because “the onus was on the drafter of the policy to convey any limitations.”[5] The court emphasized that, as the drafter of the agreement, Federal’s intent was irrelevant; only the insured’s reasonable expectations should be considered when interpreting the scope of coverage.[6]
Conclusion
This case is further evidence of trend previously noted on our blogs of state courts favoring policyholders while federal courts continually deny potential coverage.[7] While the decision of where to file a lawsuit can be difficult, Frontier’s victory adds to the compelling argument that policyholders should consider state courts when analyzing filing options for a coverage lawsuit.
*David A. Gauntlett is a principal of Gauntlett Law and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett Law at www.gauntlettlaw.com.
[1] Frontier Communications Holdings Inc. v. Indian Harbor Insurance Co. et al., case number N24C-01-131, in the Superior Court of the State of Delaware, Complex Commercial Litigation Division (Aug. 14, 2025). Opinion available at https://courts.delaware.gov/Opinions/Download.aspx?id=384580.
[2] Pension Tr. Fund v. Fed. Ins. Co., 307 F.3d 944 (9th Cir. (Cal.) 2002).
[3] The policy language provided coverage for “any claims first made against the Insured during the Policy Period as a result of any actual or alleged Breach of Fiduciary Duty committed by any Insured.” Id. at 949. “Breach of Fiduciary Duty” was defined as “the violation of any of the responsibilities, obligations or duties imposed upon fiduciaries by the Employee Retirement Income Security Act of 1974 or amendments thereto or by the common or statutory law of the United States of America or of any state or other jurisdiction therein.” Id. at 950.
[4] Id. at 950, 953.
[5] Id. at 953.
[6] Id. at 950 (“It was reasonable for PTF to expect that fiduciary duties arising out of its commercial transactions as an investment trust would be covered under the policy. The burden was on Federal to clearly describe any limitations on its broad grant of coverage, and it could have easily drafted the provision to plainly limit coverage to ERISA-type fiduciary responsibilities.”)
[7] See, e.g., David A. Gauntlett, Second Circuit Errs in Disparagement Analysis, https://www.gauntlettlaw.com/blogs/second-circuit-errs-in-disparagement-analysis (Mar. 13, 2025).