937 F. Supp. 2d 891
E.D. Ky.2013Background
- Liberty seeks declaratory judgment that it has no duty to defend/indemnify SSO/Denninghoff under their insurance policies.
- Underlying suit (Budsgunshop.com, LLC v. Security Safe Outlet, Inc., et al.) alleges misappropriation of BGS’s trade secrets and use of BGS customer data/email addresses to compete.
- BGS asserts SSO/Denninghoff accessed and used BGS’s customer data to email customers and promote competing business.
- SSO’s license to use the Bud’s Gun Shop mark allegedly terminated, but SSO continued to use the mark.
- BGS asserts intellectual-property and contract-based claims (trade secrets, trademark, license breaches) in the underlying case.
- Liberty filed a separate action for declaratory judgment seeking coverage determination, which the court resolves in Liberty’s favor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trade secret misappropriation falls within policy property damage or PAi | Liberty: misappropriated data is electronic data, not tangible property | SSO: data/email lists are tangible property causing coverage | No coverage; misappropriation not tangible; breach-of-contract exclusion applies |
| Whether trademark infringement and license breach claims are covered | Liberty: IP rights exclusions apply; no property damage or PAi | SSO: losses to identity/goodwill constitute PAi | No coverage under property damage or PAi; breach-of-contract exclusion applies |
| Whether remaining counts (fiduciary breaches, CFAA, etc.) are covered | Liberty: none allege property damage or PAi | SSO: argues potential PAi | No coverage; claims arise from confidential information misuse; breach exclusions prevail |
Key Cases Cited
- Kemper v. Heaven Hill Distilleries, 82 S.W.3d 869 (Ky. 2002) (interpretation of insurance contracts; narrow construction of exclusions)
- Eyler v. Nationwide Mut. Fire Ins. Co., 824 S.W.2d 855 (Ky. 1992) (ambiguity rules and insured-favorable interpretation when language ambiguous)
- Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503 (6th Cir. 2003) (duty to defend determined by underlying complaint vs. policy terms)
- Capitol Specialty Ins. v. Industrial Electronics, LLC, 407 Fed.Appx. 47 (6th Cir. 2011) (breach-of-contract exclusion can preclude coverage for trade secrets/related claims)
- Kentucky Ass’n of Counties All Lines Fund Trust v. McClendon, 157 S.W.3d 626 (Ky. 2005) (exclusions read independently; enforce plain language)