Intellectual Property Exclusions: Understanding the Impact in Insurance Coverage Cases
In My Choice Software, Ltd. Liability Co. v. Travelers Casualty Insurance Co. of America, the Ninth Circuit addressed a critical issue in insurance coverage disputes—whether an insurer can rely on an Intellectual Property (IP) exclusion to deny a defense claim.
Travelers argued that its IP exclusion barred defense coverage for trade secret misappropriation claims in an amended complaint, but the court rejected this assertion, setting an important precedent for policyholders.
Key Legal Issues in the My Choice Software Case
The relevant provision of the policy's IP exclusion stated that coverage did not apply to ‘Personal Injury’ or ‘Advertising Injury’ arising from any actual or alleged infringement or violation of intellectual property rights. Furthermore, it extended the exclusion to any ‘personal injury’ or ‘advertising injury’ alleged in any claim or suit that also included IP claims (Id. at 512).
Travelers contended that My Choice Software’s amended complaint against Trusted Tech asserted a trade secrets claim that fell directly within this exclusion. Additionally, because Trusted Tech’s counterclaims included defamation claims, Travelers sought to apply the exclusion broadly to deny coverage.
However, the Ninth Circuit rejected this reasoning, distinguishing the facts of this case from those in prior rulings. The court observed that none of the cases Travelers cited addressed circumstances where the only asserted claim triggering coverage was a counterclaim against the insured. This distinction played a crucial role in the court’s determination that the exclusion was inapplicable.
Implications for Intellectual Property Exclusions After the Court’s Decision
The ruling in My Choice Software provides significant guidance for businesses and policyholders facing insurance coverage disputes involving IP exclusions. The court’s interpretation reinforces that insurers cannot broadly apply IP exclusions to deny coverage when counterclaims allege non-IP-related injuries.
This decision underscores several important considerations:
Scope of IP Exclusions – Insurers cannot use overly broad interpretations of IP exclusions to avoid providing defense coverage for unrelated claims.
Counterclaims and Coverage – When counterclaims include causes of action beyond intellectual property violations, insurers may still have a duty to defend the insured.
Legal Precedents Matter – The court’s ruling highlights that prior case law does not always apply universally, and insurers must evaluate the specific facts of each dispute.
Notable Takeaways for Policyholders and Insurers
For policyholders, this case reinforces the importance of carefully reviewing policy exclusions and challenging overly broad denials of coverage. Businesses should work with experienced legal counsel to ensure they receive the full benefits of their policies.
For insurers, the decision serves as a reminder to apply exclusions carefully and in accordance with case-specific facts. Blanket denials based on broad policy language may not withstand judicial scrutiny.
Final Thoughts on Intellectual Property Exclusions
The My Choice Software case highlights the complexities of insurance coverage litigation involving intellectual property exclusions. As coverage disputes continue to evolve, businesses must remain vigilant in understanding their policies, while insurers must be precise in their application of exclusions.
If you are facing an insurance coverage dispute or need guidance on policy exclusions, contact Gauntlett Law for experienced legal support in securing the protection your business deserves.