Claim Asserting Innocence in Alleged Copyright Infringement “Arises Out of” Copyright Infringement and Triggers Exclusion

Applying Massachusetts law, the United States District Court for the District of Massachusetts has held that a policy exclusion for injury “arising out of” copyright infringement bars coverage for a lawsuit alleging that the claimant infringed the insured’s software copyrights, even in the absence of a claim for infringement by the insured. PTC, Inc. v. Charter Oak Fire Ins. Co., 2015 WL 5005796 (D. Mass. Aug. 21, 2015).

A software company’s licensee filed suit, alleging that the company had engaged in the unauthorized monitoring and use of the licensee’s confidential electronic information and made false accusations regarding copyright infringement. In response, the insured company filed a counterclaim alleging copyright infringement. The company sought coverage for the licensee’s claim under a general liability policy that provided coverage for the company’s “personal and advertising injury.” The insurer denied coverage pursuant to an exclusion for “personal injury . . . arising out of any actual or alleged infringement or violation of . . . copyright [laws].” The company filed suit against the insurer, arguing that the exclusion did not apply because the licensee’s complaint did not allege copyright infringement by the company.

The court sided with the insurer, holding that the exclusion barred coverage for the licensee’s claim. According to the court, the “arising out of” language in the exclusion was sufficiently broad to include personal injury arising out of alleged infringement by a third party, rather than the insured. The court found that the licensee’s allegations about the company’s copyright-related scheme were within the language of the exclusion, despite the absence of a claim against the company for copyright infringement.