Capital Specialty Ins. Corp. v. Industrial Electronics, LLC, No. 3:08-CV-615-H, 2009 WL 3347112 (W.D. Ky. Oct. 14, 2009)
At issue was an alleged violation of noncompete and confidentiality provisions of a prior employee, Yuriy Osyka, and his former employer ICS. A two-year noncompetition agreement and prohibition against disclosure of ICS’s proprietary information or trade secrets was incorporated.
In 2005 it was contended that Osyka deleted important business documents from ICS’s computers and took that information with him prior to leaving the company in October 2005. This precipitated lawsuits filed in 2007 when Osyka went to work for Indel, a newly formed company that also repairs electronics.
The new employer was advised by counsel that the nondisclosure agreement was not enforceable because ICS had failed to adequately compensate Osyka under the agreements.
A second action was filed against the corporate entity Indel for intentionally utilizing proprietary and trade secret information obtained from Osyka to the economic detriment of ICS.
Applying Kentucky law, the court found that a 1998 ISO provision did not compel a defense. The court reasoned:
At first blush, this does not appear to be an advertising injury. [The alleged damages caused by Indel’s use of ICS’s customer and pricing lists] did not create “a notice that [was] broadcast or published to the general public or market segments about [Indel's] goods, products or services for the purpose of attracting customers or supporters.” Moreover, there is no assertion that the advertisements of Indel slandered or libeled anyone or infringed upon another's copyright, trade dress or slogan. In fact, it does not appear that any “advertisements” caused ICS's alleged injuries. Rather, the injuries were caused by Indel's knowledge of ICS's proprietary information.
Id. at *3.
Asking a generalized not factually specific question as to whether trade secrets could constitute advertising injury, the court noted that Kentucky had not addressed the issue but contended other courts had and had rejected the concept, citing Holloway Sportswear, Inc. v. Transportation Ins. Co., 58 Fed. Appx. 172, 175 (6th Cir. (Ohio) 2003) and State Farm Fire & Cas. Co. v. Steinberg, 393 F.3d 1226, 1234 (11th Cir. (Fla.) 2004). The court found other cases referenced of no moment because they involved broader conduct than simply taking customer lists.
The court also found unpersuasive the mere mention of the word “obsolete” on Indel’s website, because it didn’t cause injuries to ICS, and it was not the gist of the complaint, which alleged instead unfair competition by misappropriation of trade secrets, such as customer and pricing lists.
The court reasoned:
Because “the injury for which coverage is sought must be caused by the advertising itself,” the use of the word “obsolete” does not require Capitol to defend or indemnify this suit. Pizza Magia Intern., LLC v. Assurance Co. of Am., 447 F.Supp.2d 766, 773 (W.D.Ky.2006) (quoting Hyman v. Nationwide Mut. Fire. Ins. Co., 304 F.3d 1179, 1192 (11th Cir.2002)).
Id. at *4.
The court noted that should there be any disagreement about this issue there is also an applicable exclusion for “personal and advertising injury arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights. However, this exclusion does not apply to infringement, in your advertisement, of copyright, trade dress or slogan.” Id. at *4.
The court found that there was no exception to the exclusion for the tortious interference claims and that, to the extent they were based on trade secret misappropriation, they therefore triggered the exclusion.
A separate contract breach action arose out of trade secret infringement and that there was a breach of contract exclusion. A statutory violation of KRS 365.880 was a prohibition against misappropriation of trade secrets, and thus the exclusion applied to it, as well.
