Duty to Defend Where Lawsuit Includes Allegations that Do Not “Solely and Exclusively” Fall within Prior Litigation and Knowledge Exclusions
The Delaware Superior Court, applying New York law, has held that cyber liability insurers had a duty to defend a lawsuit including allegations that raised “a reasonable probability of liability” related to alleged misconduct falling outside of prior claims and knowledge and prior and pending litigation exclusions, notwithstanding that most of the alleged wrongful conduct predated the operative continuity date. Motive Techs., Inc. v. Associated Indus. Ins. Co., 2025 WL 2738704 (Del. Super. Ct. Sept. 5, 2025). The court also held that the insurers were not required to pay costs for a related affirmative action brought by the insured.
The insured, an AI logistics provider, was sued by a competitor for product theft, misappropriating confidential information, and patent infringement, among other allegations. The accusations against the insured began in a series of pre-suit letters (the “Prelitigation Letters”), culminating in the lawsuit. The lawsuit explicitly referenced several of the Prelitigation Letters and alleged much of the same wrongful conduct. In response, the insured brought an affirmative suit against the competitor.
After the insured tendered both lawsuits for coverage, the primary insurer asserted that its policy’s “Prior Claims and Knowledge” exclusion barred coverage for both litigations. The provision excluded coverage for “any Loss . . . arising out of . . . any fact, event, or circumstance, likely to give rise to a Claim or Loss of which a member of [insured’s] Management was aware (including claims, incidents or circumstances noticed under other insurance), or after reasonable inquiry should have been aware, prior to the Continuity Date.” Most of the Prelitigation Letters predated the “Continuity Date.” The excess insurers also asserted that coverage was barred based on similar “Prior and Pending Litigation” and “Continuity Date” exclusions in their policies.
The court held that the insurers had a duty to defend the competitor’s lawsuit notwithstanding the exclusions and Continuity Date, finding that there was a “reasonable probability of liability” related to a later, allegedly false study cited in the lawsuit but not mentioned in the Prelitigation Letters. That allegation, in the court’s view, was sufficient to trigger the duty to defend. The court also concluded, however, that there was no coverage for the affirmative lawsuit because it was not a “mirror image” of the competitor’s lawsuit, even though the two actions involved the same allegedly wrongful conduct. The court explained that even if the insured were to prevail in its own affirmative litigation, it would neither render moot nor entirely address the competitor’s initial claims.
