Custom Hardware Engineering & Consulting, Inc. v. Assurance Company of America, ___ S.W.3d ___, 2009 WL 2431447 (Mo. App. E.D. Aug. 11, 2009)
The trial court’s finding of no coverage found an exclusion barred potential coverage for claims under Massachusetts state law for unfair competition, tortious interference with business relations, and unfair competition under federal law asserted by StorageTek vis-à-vis disputes over the rights to service and maintain StorageTek equipment.
Custom Hardware sent false and misleading marketing materials to customers and potential customers which misrepresented intentionally that Custom Hardware had a license to use StorageTek's copyright protected maintenance code in order to service StorageTek equipment.
The court did not analyze whether the asserted claims for relief could be supported absent any theory of liability consistent with the factual claims asserted, the standard enunciated by the majority of courts and best articulated in Ohio Cas. Ins. Co. v. Cloud Nine, LLC, 464 F. Supp. 2d 1161 (D. Utah 2006) (“[T]he causes of action asserted against the Cloud Nine Defendants do not necessarily require that, in order to find liability, the defendant have knowledge of falsity or knowledge that its conduct would cause advertising injury.”). (The exclusion barred intentional acts). This approach is based on a misreading of Connecticut Indemnity Co. v. DER Travel Service, Inc., 328 F. 3d 347, 350-51 (7th Cir. (Ill.) 2003) which analyzed that there is an errors & omissions policy which did have an intentional acts exclusion in transposing that analysis to a completely distinct offense-based policy which incorporates intentional acts as the offenses within the policy.
While it cited a number of cases that found that the assertion of negligent or reckless conduct would render the “knowledge of falsity” exclusion inapplicable, the court presumed as a negative pregnant from these cases (i.e., absent allegations of negligence or recklessness the pertinent exclusion would otherwise apply.) These cases did not address that issue and did not stand for the proposition urged.
The court did not address whether the precluding coverage for infringing upon another’s copyright in your advertisement was implicated because it found the exclusion barred a defense. Analyzing both knowledge that the act would violate the rights of another’s and inflict “personal and advertising injury” as well as “knowledge of falsity,” the court found the defense precluded all that was alleged was deliberate, knowing, willful, malicious and oppressive statements and infringement activity with regards to StorageTek’s priority rights.
