SUPERIOR INTEGRATED SOLUTIONS, INC. VS. MERCER INSURANCE COMPANY OF NEW JERSEY, INC. (L-1518-16, MIDDLESEX COUNTY AND STATEWIDE)
A-1027-18T4
N.J. Super. Ct. App. Div.Jul 10, 2020Background
- Superior Integrated Solutions (Superior) is an IT integrator for car dealers; it held a Mercer commercial liability policy including "advertising injury" coverage.
- Reynolds sued Superior (S.D. Ohio, 2012), alleging Superior copied Reynolds' DMS files, instructed Reynolds' customers to install them, and solicited customers using that capability — asserting copyright infringement, inducement to breach contracts, and CFAA violations.
- Superior demanded defense; Mercer denied coverage citing multiple exclusions (intentional acts, computer‑software professional activities, prior publication) and declined to defend.
- Superior defended the Ohio action, settled without paying Reynolds, incurred ~$591k in defense costs, and recovered $337,500 from an Evanston policy; Superior then sued Mercer for breach of contract and bad faith.
- On cross‑motions, the trial court held Mercer had a duty to defend under the advertising‑injury provision, rejected Mercer's asserted exclusions, apportioned costs (accounting for Evanston payment), awarded attorney fees, and entered final judgment for Superior; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend under "advertising injury" | Reynolds alleged Superior advertised its services by telling customers they could integrate with Reynolds' DMS due to Superior's copying — triggers coverage | "Selling" or underlying infringement is not "advertising"; Info. Spectrum bars coverage absent advertising causation | Court: Reynolds alleged a "discrete piece of advertising" causally linked to the infringement; duty to defend triggered |
| Causation between advertising and injury | Advertising enabled solicitation; infringement made the advertising effective | Infringement caused the harm, not advertising | Court: complaint alleged advertising caused the injury; causal nexus satisfied |
| Intentional‑acts exclusion (publication done with knowledge) | Exclusion requires intent to injure; complaint alleges profit motive, not intent to harm | Allegations of intentional infringement establish the exclusion | Court: Exclusion concerns intentional injury; Reynolds did not plead intent to injure and copyright infringement is not an intent‑to‑injure tort; exclusion inapplicable |
| Computer‑software professional activities exclusion | Exclusion targets professional advice/services to customers, not third‑party advertising injuries | Exclusion bars coverage for claims arising from software activities | Court: Applying exclusion to advertising coverage would render advertising coverage meaningless; exclusion did not apply |
| Prior‑publication exclusion | Reynolds' claims arose from 2012 acts; prior 2009 website ad was unrelated | 2009 website publication triggers exclusion | Court: No connection shown between alleged injury and prior publication; exclusion inapplicable |
| Allocation of defense costs | Mercer refused to defend, so it must reimburse its share; Evanston payment reduces Mercer liability | Mercer challenged allocation and amounts | Court: Mercer failed to meet burden to allocate or challenge reasonableness; judge's allocation and fee award affirmed |
Key Cases Cited
- Information Spectrum, Inc. v. Hartford, 182 N.J. 34 (N.J. 2004) (advertising‑injury coverage requires that advertising cause the injury)
- Flomerfelt v. Cardiello, 202 N.J. 432 (N.J. 2010) (insurance policy terms interpreted by plain meaning; ambiguities construed for insured)
- SL Industries, Inc. v. American Motorists Insurance Co., 128 N.J. 188 (N.J. 1992) (allocation of defense costs between covered and noncovered claims)
- Wear v. Selective Insurance Co. of America, 455 N.J. Super. 440 (App. Div. 2018) (duty to defend review and exclusion‑construction principles)
- Hartford Accident & Indemnity Co. v. Aetna Life & Casualty Ins., 98 N.J. 18 (N.J. 1984) (duty to defend derives from policy language)
- Sears Roebuck & Co. v. National Union Fire Ins. Co. of Pittsburgh, 340 N.J. Super. 223 (App. Div. 2001) (side‑by‑side comparison of complaint and policy to determine duty to defend)
- Elan Pharmaceutical Research Corp. v. Employers Ins. of Wausau, 144 F.3d 1372 (11th Cir. 1998) (definition of "advertising" for solicitation of business)