April 19, 2010

Our customer is insured with Westfield Ins. Co. under a CGL policy, 2007 edition. They have entered into a license agreement to use a software package. Over the course of a few years, with the knowledge of the software company’s support staff, the insured has written and integrated applications into the software. Recently, the software company accused the insured of “copyright infringement” and is making an exorbitant monetary demand. Your thoughts regarding coverage? We extensively researched the “infringement” exclusion and “breach of contract” exclusion under Coverage B and are not seeing how we can even trigger a duty to defend. We think the claim is bogus, but will be expensive nevertheless.

Kentucky Subscriber

Any claim under Coverage B of the CGL form has to first meet the definition of personal and advertising injury. The claimant is alleging copyright infringement and that does meet the definition in that infringing upon another’s copyright in the named insured’s advertisement is part of the definition.

There is an exclusion for personal and advertising injury arising out of the infringement of copyright or other intellectual property rights, but there is an exception for infringement in the named insured’s advertisement in order to accommodate the definition of personal and advertising injury as stated above.

So, what needs to be done before any outright denial of coverage is to check and see if the alleged copyright infringement occurred in the insured’s advertisement. If so, there is coverage and the duty to defend exists. If this is not the case, then your denial would be appropriate.