Internet Library of Law
and Court Decisions

Insurance - Internet Library of Law and Court Decisions - Updated May 8, 2008

Court allows plaintiff Adobe Systems Inc. (“Adobe”) to proceed with action to recover from its insurer St. Paul Fire and Marine Insurance Company (“St. Paul”) defense and indemnity costs incurred in connection with a series of legal actions between Adobe, Agfa Monotype Corporation (“Agfa”) and International Typeface Corporation (“International”).  These actions arose out of Adobe’s decision, without Agfa and International’s consent, to incorporate into its Adobe Acrobat software “technology designed to circumvent embedding bits in [typeface] fonts” in which Agfa and International held copyrights, which technology permitted users to embed those fonts into PDF documents the Adobe software allowed users to edit. 

The Court held that Errors and Omissions (“E&O”) policies issued by St. Paul potentially covered claims asserted in these lawsuits, as they provided coverage for losses resulting from Adobe products that are caused by a wrongful act – here the distribution of Adobe software which contained circumvention technology.  The Court reached this result notwithstanding the fact that the policy excluded coverage for intentional wrongful acts, because, while the decision to include this technology was intentional, Adobe believed it was permitted to do so.

The Court nonetheless denied Adobe’s motion for summary judgment, because there were questions of fact as to when Adobe first had notice of these claims.  As this was a claims made policy, if Adobe could reasonably foresee that a claim would be made before the policy period began, it would not have coverage under the policy.

Finally, the Court granted so much of St. Paul’s summary judgment motion that sought  dismissal of plaintiff’s bad faith claim arising out of St. Paul’s denial of coverage, as well as its claim for punitive damages, because such denial was based on a legitimate dispute as to St. Paul’s obligations to provide coverage under the policies at issue.

Court holds that insurer has no duty under a Commercial General Liability Insurance policy to defend AOL against claims that AOL's software caused injury to, and the loss of use of, individuals' computers, and the software, data and systems thereon.  The Court held that the claims of injury to, and loss of use of, software, data and systems did not constitute "property damage" for which AOL was protected under its insurance policy because software, data and systems are not "tangible property" within the meaning of the policy.  The court rested this determination in large part on its finding that such items could not be seen or touched.  As the policy only provided protection for "property damage" to "tangible property", it provided AOL with no protection for injuries to such intangible property.

The court further held that while the lost use of computers would constitute  property damage under AOL's CGL policy, AOL was not covered for such loss as a result of the policy's impaired property exclusion.  Under this exclusion, the defendant insurer is not obligated to provide coverage for liability for property damages caused by a faulty or defective AOL products.  As the claimed injuries were the result of the use of an allegedly faulty AOL software product, coverage for such injuries was excluded by the impaired property exclusion.

Lastly, the court held that coverage for lost use of a user's computer as a result of AOL's "faulty" software was also barred by application of the economic loss rule.  Under this rule, "when a product injures itself because one of its component parts is defective, a purely economic loss results to the owner for which no action in tort lies."

Court holds that defendant's loss of the use and functionality of its computers as a result of a power outage constitutes "direct physical loss or damage" within the meaning of a property damage insurance policy issued by the plaintiff. The court reached this conclusion notwithstanding the fact that the computers in question retained the inherent ability after the power outage to perform the same functions as previously. The loss of use was caused instead by the loss of custom programming contained in the computers' RAM as a result of the power outage.

Court holds that insurers who issued a "business owners" policy and a "commercial umbrella liability" policy covering losses caused by an "advertising injury" have a duty to defend their insureds in an action alleging, inter alia, trademark infringement. Such claims, held the Court, fall within the policy's coverage for injury arising out of the "misappropriation of advertising ideas or style of doing business," which the policy includes within the definition of covered advertising injuries.

Court grants summary judgment motion of defendant St. Paul Mercury Insurance Company (“St. Paul”), and holds St. Paul has no duty to defend or indemnify plaintiff America Online (“AOL”) for losses sustained as a result of its defense and settlement of lawsuits brought against its Netscape subsidiary arising out of Netscape’s collection of information about the internet activities of users of its ‘Smart Download’ software.  Such activities were alleged to constitute violations of both the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act.  The Court held that St. Paul had no obligation to indemnify AOL for such losses because the General Liability Policy it issued excluded coverage for ‘personal injury’ arising out of ‘online activities,’ which activities included ‘providing internet access to third parties.’  As interpreted by the Court, this phrase encompassed activities which allowed users to ‘make use of’ the Internet.  As the Smart Download software assisted users in downloading files over the Internet, the conduct at issue was an “online activity’ within the meaning of St. Paul’s insurance policy, and accordingly was excluded from coverage thereunder.

Vacating the decision of the court below, the Fourth Circuit Court of Appeals holds that defendant Travelers Indemnity Company of America ("Travelers") is obligated under an insurance policy it issued to defend Nissan Computer Corporation ("NCC") in a trademark infringement and dilution suit brought by Nissan Motor Company ("Nissan") arising out of NCC's use of the "Nissan" mark in the domain names of NCC's web sites. NCC had used the "Nissan" mark, which is also the last name of NCC's owner, on web sites which contained advertisements for both competitors' automobiles and NCC's own hosting and internet access services.  The Fourth Circuit held that Travelers was obligated to defend NCC against Nissan's claims under an insurance policy which protected NCC from any "advertising injury" sustained by a third party which was caused by an  "offense [NCC] committed in the course of advertising NCC's goods, products or services."