Third Circuit: No Coverage Owed In IP Battle

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PHILADELPHIA, March 10 – The U.S. Court of Appeals for the Third Circuit has affirmed judgment for insurer USLIC, holding it has no duty to defend or indemnify its insured in an battle over appropriation of computer software /  intellectual property.

In Hammond v. USLIC, the Plaintiff, Hammond, entered into a working relationship with TCA and LANTek to develop hazmat transportation compliance software.  After a dispute arose and the companies filed a declaratory judgment action against Hammond alleging misappropriation and infringement, Hammond tendered responsibility for his defense and indemnification to USLIC under Businessowners’, Technology and Professional Liability, and Malicious Prosecution endorsements to his USLIC policy.  USLIC denied coverage, relying in part on a policy exclusion disclaiming coverage for the alleged infringement of patent, copyright, and other intellectual property rights.  Hammond then filed breach of contract and bad faith claims against the insurer.

Judge Arthur Schwab of the U.S. District Court for the Western District of Pennsylvania granted USLIC’s motion for judgment on the pleadings after undertaking analysis of the civil action filed by TCA and LANTek against Hammond.   The Third Circuit affirmed, finding that while the policy did afford Hammond coverage for “personal advertising injury” claims and claims of “malicious prosecution,”  the request in the underlying suit for statutory attorneys fees arose out of patent and trademark issues, not claims of malicious prosecution.   The Court also held that the intellectual property infringement exclusion of the policy supported USLIC’s denial of coverage.

The Court affirmed dismissal of Hammond’s follow-on bad faith claim as well.

Hammond v. USLIC (3rd Cir., March 10, 2016)