Capitol Specialty Insurance v. Industrial Electronics, LLC
407 F. App'x 47
6th Cir.2011Background
- Indel, an electronics repair company, and Osyka, its former employee, are defendants in a Kentucky state court action brought by ICS alleging misappropriation of trade secrets and breach of contract.
- Osyka previously signed employment agreements with ICS containing non-compete and confidentiality provisions lasting two years post-employment.
- Osyka left ICS in Oct 2005, then joined Indel; ICS alleges he disclosed ICS’s customer and pricing lists to Indel, which used the information.
- Capitol Specialty Insurance issued a CGL policy to Indel, covering policy periods from 2006 to 2009, under which Capitol agreed to defend Indel and Osyka in the underlying action under a reservation of rights.
- ICS’s underlying state-court complaint asserted tortious interference with business relationships, breach of contract, and violations of Kentucky’s Uniform Trade Secrets Act.
- Capitol sought a declaration that it has no duty to defend or indemnify Indel and Osyka, arguing the claims fall outside policy coverage or are excluded by provisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Breach of Contract exclusion bars coverage. | Capitol. | Indel and Osyka. | Yes; exclusion applies to all insureds. |
| Whether the Infringement of IP exclusion or other exclusions apply. | Capitol. | Indel and Osyka. | Not necessary to decide; Breach of Contract exclusion suffices. |
Key Cases Cited
- St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223 (Ky. 1994) (exclusions narrowly interpreted in favor of insured)
- Dowell v. Safe Auto Ins. Co., 208 S.W.3d 872 (Ky. 2006) (policy terms interpreted in favor of reasonable expectations)
- True v. Raines, 99 S.W.3d 439 (Ky. 2003) (ambiguities resolved in favor of insured where present)
- Hugenberg v. West American Insurance Co./Ohio Casualty Group, 249 S.W.3d 174 (Ky. App. 2006) (arising-out-of construction applied to determine connection to breach of contract)
- Gemini Insurance Co. v. Andy Boyd Co., 243 F. App’x 814 (5th Cir. 2007) (breach-of-contract exclusion can apply where injuries are incidentally related to breach)