Wade Clark Mulcahy LLP

<p style="text-align: justify;">A New York federal court recently held that Hartford did not have a duty to defend or indemnify its insured, Spandex House, in an underlying lawsuit in which Spandex was sued for copyright infringement.  The ruling in<em> <a href="https://www.wcmlaw.com/wp-content/uploads/2019/09/Spandex-v.-Hartford-Fire-Insurance-Company.pdf">Spandex v. Hartford Fire Insurance Company</a></em>, thus represents a big win for New York insurers who seek to have their contracts enforced as written.</p>
<p style="text-align: justify;">In the underlying action, a fabrics company alleged that Spandex had “created, sold, manufactured, caused to be manufactured, imported and/or distributed” fabrics and garments identical to the company’s own designs.  The lawsuit further alleged that Spandex violated the company’s rights through its marketing and advertising activities.  Hartford denied coverage based on the policy’s IP Exclusion, which barred coverage for personal and advertising injury 1) “arising out of” allegations of infringement of intellectual-property rights, and 2) any damages alleged in “any claim or ‘suit’ that also alleges” infringement of intellectual property rights.  The court first held that the exclusion was unambiguous.  In so doing, the court refused to consider proffered evidence regarding Hartford’s apparent decision to defend a different insured under similar circumstances.  Instead, the court reiterated longstanding New York law that extrinsic evidence may not be used to create an ambiguity in language that was clear on its face.</p>
<p style="text-align: justify;">Secondly, the court held that the advertising exception to the IP exclusion was inapplicable.  This exception stated the exclusion did not apply “if the only allegation in the claim or ‘suit’ involving any intellectual property right is limited to: 1) [i]nfringement, in your 'advertisement,'" of copyright, slogan, or title, or "2) [c]opying, in your ‘advertisement,’ a person's or organization's ‘advertising idea’ or style of ‘advertisement.’”  The court held that, while there were allegations of advertising infringement, “the bulk of the allegations of infringement relate not to advertisements but to sale and distribution,” and thus the exception did not apply.</p>
<p style="text-align: justify;">Consequently, this case illustrates that New York courts will likely uphold similar IP exclusions despite pressure from the Insured claiming coverage should nonetheless be provided.</p>
<p style="text-align: justify;">Thank you to Doug Giombarrese for his contribution to this post.  Please email <a href="mailto:chayes@wcmlaw.com">Colleen E. Hayes</a> with any questions.</p>