‘Super Sized’ Ruling: IL Federal Court Upholds Application of ‘Super’ Intellectual Property Exclusion Under Coverage B

In Hartford Casualty Insurance Company v. Dental USA, Inc., No. 13-C-7637, 2014 U.S. Dist. LEXIS 85529 (N.D. Il. June 24, 2014), the United States District Court for the Northern District of Illinois recently upheld as enforceable and not against public policy a “super” intellectual property exclusion. The coverage dispute arose out of the following circumstances.  Since 2008, Dental USA, Inc. had been insured by Hartford Insurance Company, which issued general liability policies for Dental’s business as a supplier of dental instruments. Dental commenced two lawsuits against various defendants alleging, among other things, patent, trademark, and copyright infringement of Dental’s intellectual property. The defendants counterclaimed against Dental for breach of contract, unfair competition, copyright infringement, trademark claims, patent claims, and false advertising.  Specifically, the counterclaims arose from alleged false statements made by Dental to the defendants’ customers in 2013. Dental tendered the defense and indemnity of the underlying counterclaims to Hartford under the GL policies. Hartford denied Dental’s claim relying, in part, on intellectual property exclusions.  Hartford subsequently filed a declaratory judgment action against Dental. On cross-motions for summary judgment, the district court ruled that Hartford had no duty to defend or indemnify Dental under Coverage B because the intellectual property exclusions clearly and unambiguously applied to the allegations of the counterclaims. In relevant part, the 2008-2011 policies contained an intellectual property exclusion barring coverage for “personal and advertising injury … arising out of any violation of any intellectual property rights, such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity.” By comparison, the 2012-2014 policies contained an even broader IP exclusion for “any injury or damage alleged in any claim or ‘suit’ that also alleges an infringement or violation of any intellectual property right, whether such allegation of infringement or violation is made by you or any other party involved in the claim or ‘suit,’ regardless of whether this insurance would otherwise apply.” Dental argued that the counterclaims included allegations of false advertising, which arguably triggered Hartford’s duty to defend. The court disagreed holding that the super IP exclusion was clear and unambiguous. The court recognized that the insured was on notice, in obtaining the endorsement with the super IP exclusion, that any claim or suit based on intellectual property rights claims, even if it included non-intellectual property claims, would not be covered. Going forward, it remains to be seen how appellate courts will construe this super exclusion, as the exclusion is critical to insurers’ attempts to limit their exposure to very expensive and unpredictable intellectual property-based claims.  

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