Investment Advisor’s Unauthorized Copying of Trade Publication Held Not to Constitute a Wrongful Act in the Performance of Investment Advisory Services
In a win for Wiley’s client, the Los Angeles County Superior Court, applying California law, granted an insurance tower’s motion for summary judgment, finding that an investment advisor’s unauthorized copying of a trade publication did not constitute a wrongful act in the performance of Investment Advisory Services so as to fall within the scope of coverage under a professional liability insurance policy. Kayne Anderson Cap. Advisors, v. AIG Specialty Ins. Co., No. 21STCV03202 (Cal. Sup. Ct., Los Angeles Cnty. July 25, 2022). The court held that even though the publication was “extremely important to [the investment advisor’s] business,” there was no coverage nonetheless because the act of copying the publication was ministerial or administrative in nature.
An investment advisor subscribed to a trade publication on a subject pertinent to its investments. Rather than purchase subscriptions for all of the individuals who read the publication, the advisor purchased a single subscription and had administrative personnel systematically forward it around the office each day. The advisor faced a copyright infringement suit from the publisher, which ultimately settled for $15 million after more than three years of litigation. The advisor tendered the matter to its professional liability insurance program, which covered, in relevant part, “Loss of an Investment Adviser or Insured Person that arises from any Claim made against such Insured for a Wrongful Act by or on behalf of such Insured in the performance of or failure to perform Investment Advisory Services.” Investment Advisory Services was defined in relevant part as “financial, economic or investment advice or investment management services (including the selection and oversight of investment advisers . . .) provided to others for consideration and pursuant to a written contract.” The insurers denied coverage on the basis that the copyright action did not allege a Wrongful Act in the performance of Investment Advisory Services. The advisor disagreed, arguing that it read the publication to inform its investment decisions. Coverage litigation ensued, and the insurers moved for summary judgment.
The court found that there was no potential for coverage. The court reasoned that, although the advisor used the publication in the performance of its Investment Advisory Services, the actual Wrongful Act—the unauthorized copying of the publication—was not part of those services. Instead, the underlying copyright lawsuit was “based on unauthorized copying and distribution of a copyrighted work, not on using the content of that work in giving investment advice.” The Court found this interpretation of Investment Advisory Services to be consistent with the policy as a whole.
- Special Counsel