Lemko Corp. v. Federal Insurance
70 F. Supp. 3d 905
N.D. Ill.2014Background
- Lemko Corporation seeks to impose a duty to defend under Cincinnati, Federal CGL, umbrella, excess, and D&O policies in a Motorola suit alleging misappropriation of trade secrets and confidential information from 2002–2007.
- Motorola asserted twelve counts including CFAA, trade secrets, copyrights, and other tort/civil claims against Lemko and 16 defendants; claims based on unauthorized computer access and transfer of Motorola data.
- Cincinnati policy covers property damage and personal/advertising injury with exclusions for intentional injury; Federal policy includes similar property damage/advertising injury coverage with IP, expected/intended, and crime/fraud exclusions; D&O policy excludes misappropriation of IP or trade secrets.
- Cincinnati and Federal declined defense; Lemko and insurers cross-moved for summary judgment; court addresses whether duty to defend attaches and whether policy defenses are estopped by insurer conduct.
- Court finds no duty to defend for either insurer and considers estoppel; bad-faith claim under Illinois law is denied due to bona fide coverage disputes.
- Key procedural note: policy periods and interplay of multiple policy layers are central to the court’s analysis; the court ultimately grants summary judgment to insurers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Federal is estopped from raising defenses. | Lemko argues estoppel applies due to failure to defend. | Federal contends estoppel requires a wrongful denial of coverage. | Estoppel does not apply yet; court may consider policy defenses. |
| Whether property damage coverage is triggered by Motorola claims. | Lemko relies on loss of use/conduct impairing computers. | Insurers say no physical injury or accident; exclusions apply. | No property-damage duty to defend; allegations are conclusory and not an accident. |
| Whether advertising injury coverage is triggered by copyright infringement allegations. | Lemko argues advertising injury via infringement in advertising. | Complaints do not allege advertising infringement; exclusions apply. | No advertising-injury duty; infringement in advertising not established. |
| Whether IP exclusions bar D&O coverage for misappropriation/related claims. | Lemko seeks coverage for various counts. | IP exclusion covers misappropriation of ideas/trade secrets. | IP exclusion bars coverage for those claims. |
| Whether bad-faith claims survive given the insurer defenses. | Lemko asserts bad faith for denying coverage. | Bona fide dispute over coverage negates §155 penalty. | Bad-faith claim rejected; bona fide dispute exists; no penalties. |
Key Cases Cited
- Northfield Ins. Co. v. City of Waukegan, 701 F.3d 1124 (7th Cir. 2012) (duty to defend hinges on underlying allegations and policy terms)
- Pekin Ins. Co. v. Wilson, 237 Ill.2d 446 (Ill. 2010) (Illinois law on determining duty to defend and policy interpretation)
- Am. States Ins. Co. v. Koloms, 177 Ill.2d 473 (Ill. 1997) (plain meaning controls; ambiguity resolved against insurer)