Hartford Cas. Ins. Co. v. EEE Business, Inc., No. C 09-01888 JSW, 2009 WL 3809817 (N.D. Cal. Nov. 10, 2009)
Addressing the right of Microsoft as judgment creditor to establish coverage under the policy of its insured pursuant to California Insurance Code § 11580(d)(2), the court found that the coverage was not properly established.
As a third party judgment creditor, Microsoft has the burden to establish that Hartford owed the EEE Defendants a duty to indemnify, not merely to defend. See Cal. Ins.Code § 11580(b)(2). As a non-insured, Microsoft has no standing to raise the duty to defend. . . . In addition, as a third party creditor, Microsoft is subject to the same coverage defenses available against the insured. See Cal. Ins.Code § 11580(2).
Id. at *5.
The pertinent coverage, an exception to the IP exclusion under which Microsoft need establish liability, was “infringement of copyright . . . in your ‘advertisement.’ ” Id. at *5.
To trigger coverage under the advertising injury provisions of the Policies, the Underlying Lawsuit must have alleged, and judgment must have been entered, on the theory of potential for liability on one of the listed offenses and the offense was committed in the course of advertising the insured's goods, products or services. See Bank of the West v. Superior Court, 2 Cal.4th 1254, 1277 (1992). The California Supreme Court in Bank of the West held that there can be no coverage where the alleged injury had no causal connection to the insured's advertising activities. Id. at 1276.
Id. at *5.
As the court explained:
Here, the EEE Defendants' alleged copyright infringement did not have any causal relationship with its advertising as required to fall under the coverage for “advertising injury.” The allegations in Microsoft's complaint and the judgment entered in its favor concern merely the fact that the EEE Defendants infringed Microsoft's software copyrights by importing and selling the software in the United States when it was only licensed for sale abroad and to educational institutions. The judgment and the complaint upon which it was entered does not relate to any content in advertising or injury caused therefrom.
Id. at *6.
The other problem is that the alleged copyright infringement was deemed to be intentional, which is how the court characterized personal and advertising injury “arising out of an offense committed by, at the direction of or with the consent or acquiescence of the insured with the expectation of inflicting ‘personal and advertising injury.’ ” The court found that this implicated California Insurance Code § 533, precluding coverage for willful misconduct.
Clearly Microsoft could have planned against pirates in such a way that it could have obtained a judgment that was more likely to be enforceable against the insurer but elected not to do so. That decision was costly as it simply obtained the benefit of relief as a practical matter but no damages.
