123 F. Supp. 3d 206
D. Mass.2015Background
- PTC was sued by Flextronics alleging PTC embedded secret software in licensed products that accessed Flextronics’ computers, and that PTC made false copyright-infringement accusations as part of an extortionate scheme.
- Flextronics pleaded six claims (CFAA, Cal Penal Code §502, declaratory relief under Copyright Act, breach of contract, trespass to chattels, conversion) and sought a declaration it had not infringed PTC’s copyrights.
- PTC asserted counterclaims for copyright infringement and breach of contract against Flextronics.
- Charter Oak issued a commercial general liability policy to PTC that contained an intellectual-property (IP) exclusion barring coverage for personal/advertising injury “arising out of any actual or alleged infringement” and for any other personal injury alleged in a claim or suit that also alleges such infringement.
- PTC tendered defense; Charter Oak refused coverage relying on the IP exclusion. PTC sued for declaratory relief and breach of contract; PTC moved for judgment on the pleadings that the IP exclusion did not apply.
- The court evaluated whether the IP exclusion unambiguously covered the Flextronics allegations and whether the exclusion could be triggered by third‑party allegations or by PTC’s counterclaim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the IP exclusion applies when alleged IP misconduct is by a third party or alleged generally in the suit | PTC: exclusion is ambiguous because it does not expressly state it applies to third‑party conduct; therefore construed for coverage | Charter Oak: broad “arising out of” language covers injuries tied to alleged infringement in the suit, regardless of who committed it | Held: exclusion unambiguous and applies to allegations of infringement by third parties; covers Flextronics’ complaint |
| Whether the IP exclusion requires a direct claim of copyright infringement against the insured | PTC: Flextronics did not directly allege copyright infringement by PTC, so exclusion should not apply | Charter Oak: exclusion covers injuries that ‘‘arise out of any actual or alleged infringement’’ and any suit that includes such allegations | Held: need not be a direct infringement claim against PTC; causal nexus to alleged IP dispute suffices |
| Whether PTC’s affirmative counterclaim for copyright infringement triggers or affects coverage | PTC: counterclaim should not be treated as an insurer‑triggering allegation; insurer need not fund insured’s offensive claims | Charter Oak: counterclaim is an allegation of infringement in the same suit and thus within exclusion | Held: court declined to decide whether a counterclaim alone would trigger exclusion (unnecessary to outcome) |
| Whether reasonable‑expectations doctrine defeats a clear IP exclusion | PTC: insured’s reasonable expectations favor defense coverage despite exclusion | Charter Oak: if exclusion is clear and unambiguous, reasonable‑expectations doctrine does not apply | Held: exclusion is unambiguous; reasonable‑expectations doctrine inapplicable |
Key Cases Cited
- Finn v. National Union Fire Ins. Co. of Pittsburgh, PA, 452 Mass. 690, 896 N.E.2d 1272 (2008) (held broad IP exclusion unambiguously covers claims based on third‑party conduct)
- Liquor Liability Joint Underwriting Ass’n of Mass. v. Hermitage Ins. Co., 419 Mass. 316, 644 N.E.2d 964 (1995) (interpreting ambiguous assault/battery exclusion and limits of exclusionary language)
- USM Corp. v. First State Ins. Co., 420 Mass. 865, 652 N.E.2d 613 (1995) (construing errors‑and‑omissions exclusion and ambiguity when third‑party design errors involved)
- Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 545 N.E.2d 1156 (1989) (principle that duty to defend is broader than duty to indemnify)
- Camp Dresser & McKee, Inc. v. Home Ins. Co., 30 Mass.App.Ct. 318, 568 N.E.2d 631 (1991) (rules of insurance contract construction and strict construction of exclusions)