Also, the insured must notify the police if a law may have been broken. Is an insured supposed to know about the law, how, and if it has been broken?

The insured has to protect covered property from further loss. To what extent does the insured have to go to protect his property from further loss?

A breach of the duties of the insured after a loss may lead to the insurer trying to deny a claim or to completely void the insurance contract, so it is important for the insured to know these duties and to understand how to go about fulfilling them. For information on duties and legal decisions that may help in understanding these contractual obligations, see Duties in the Event of a Loss; the article is on the Commercial Property M.3 pages.

Businessowners Beware: You May Have Insurance, But Does It Cover Your Intellectual Property?

This is the second and final part of the article on businessowners and intellectual property that was written by Ms. Erin Fay and Ms. Julie Frymark. The first part appeared in the April FC&S issue. This section offers information on recent cases in patent law regarding insurance coverage.

Businessowners Beware (Cont.)

While copyright and trademark issues often create a duty to defend, an insured has an uphill battle to prove that its CGL insurance policy covers patent infringement litigation. While there is some case law that states that there is such a duty, the majority of courts have ruled that patent infringement actions are outside the scope of a CGL policy.

There are also patent-specific insurance policies available; however, the premiums are very expensive. This expense is often prohibitive for most inventors and patent owners, but it may be a worthwhile option for a corporation that owns several patents.

Prior to 1994, the majority of cases held that patents were simply not encompassed by CGL policies; specifically, patent infringement lawsuits were not covered under the advertising injury clause contained in a CGL coverage form. For an example of this finding, see Everest and Jennings, Inc. v. American Motorists Insurance Company, 23 F.3d 226 (9th Cir. 1994). But note that the reasoning behind these case decisions has been invalidated by the 1994 amendment to the Patent Act.

In 1994, Congress amended the Patent Act to include “offers to sell” as conduct that could constitute a direct patent infringement; this amendment became effective in 1996 and is codified at 35 U.S.C. §271(a). Due to the addition of this item to the patent statute, there is no longer a bright line rule that advertising can never give rise to a direct patent infringement action. For examples of this point, see the following cases: HollyAnne Corporation v. TFT, Inc., 199 F.3d 1304 (Fed. Cir. 1999) and Maxconn, Inc. v. Truck Insurance Exchange, 74 Cal. App. 4th 1267 (1999).

Despite this, courts are much more inclined to deny coverage for patent infringement lawsuits. The Ninth Circuit stated that the reason for denial often hinges on whether the alleged infringement had a causal connection to the insured's advertising activities; this was the case of Simply Fresh Fruit, Inc. v. Continental Insurance Company, 94 F.3d 1219 (9th Cir. 1996).

In most cases, courts have held that it does not; for example, see United National Insurance Company v. SST Fitness Corporation, 182 F.3d 447 (6th Cir. 1999), and see Herman Miller Inc. v. Travelers Indem. Company, 162 F.3d 454 (6th Cir. 1998). In both of these cases, one under Ohio law and the other under Michigan law, the definition of “advertising injury” on the general liability policy was determined to not include patent infringement.

There is also substantial case law regarding whether patent infringement is considered piracy and, therefore, covered under CGL policies. Again, however, courts have separated the idea of piracy and infringement. The courts have tended to narrowly construe the definition of piracy to copyright infringement. As examples, see the following cases: Flouroware, Inc. v. Chubb Group of Insurance Companies, 545 N.W.2d 578 (Minn. App. 1996), and Konami (Am.), Inc. v. Hartford Insurance Company of Illinois, 761 N.E.2d 1277 (Ill. App.2d 2002).

On the other hand, the Eleventh Circuit, in Elan Pharmaceutical Research Corporation v. Employers Insurance of Wausau, 144 F.3d 1372 (11th Cir. 1998), held that the insurer had a duty to defend Elan Pharmaceutical in pursuing its patent infringement lawsuit because the complaint alleged claims that may have fallen with the policy's advertising injury provision.

Pfizer sued Elan, alleging that Elan had infringed a patented drug licensed to Pfizer by commercializing a competing form of the drug. The provision for an advertising injury defined such an injury as one that occurred during the policy period and in the course of advertising the insured's goods, products, or services.

The policies in this case defined advertising injury to include injury arising out of patent infringement committed in the course of the insured's advertising activities. Due to the fact that the complaint in this case included facts that related to the advertising of the competing drug, the court held that Elan's insurance company had a duty to defend.

There is very little case law in Wisconsin on this issue. However, in Heil Company v. Hartford Accident and Indemnity Company, 937 F. Supp. 1355 (E.D. Wis. 1996), the Eastern District of Wisconsin held that patent infringement was not caused by conduct committed in the course of advertising. Therefore, it was not covered under the advertising injury coverage of the liability policy.

This case was premised on a bad faith claim in which Heil alleged that its insurer (Hartford Indemnity) should have defended Heil in its patent infringement lawsuit. The court held that patent infringement did not fall within the scope of the policy; consequently, there was no bad faith.

Because of the 1994 amendment to the Patent Act, many insurance companies have drafted their policies to better reflect that patent infringement is not covered under the advertising injury clause. However, some of the cases suggest that a patent infringement lawsuit is not an absolute bar to coverage, but, rather, depends on how the complaint alleges the infringement.

If the complaint alleges infringement due to offers for sale, or a fact that is based on some kind of advertising, it is conceivable that a court would rule in favor of the insured and grant coverage.

Insurance policies regarding coverage for intellectual property claims have seen numerous changes in the past decade; this trend is likely to continue well into the future. With this in mind, there are likely to be continued developments that may affect the coverage of intellectual property claims.

In conclusion, intellectual property is, by its very nature, intangible property. Insurance companies tend to view their policies as covering tangible property. Yet, as technology advances and the world increasingly relies upon intangibles like the Internet, it is reasonable to speculate that such insurance policies would be interpreted by some court to cover intangible property as well as tangible property.

It is unlikely that an insurance company will immediately agree to defend or indemnify any intellectual property litigation. However, such coverage may, in fact, exist. Reading the insurance policy carefully may save a litigant the cost of attorneys' fees, and, possibly, it may gain a litigant reimbursement for losses to its copyright, trademark, or patent rights.

Uninsured Motorist Issue Dogs Insurer

Stephany Wilson climbed into a taxicab in Falmouth, Massachusetts, followed by her dog. But before her dog was completely inside the cab, the driver shut the door on the dog's tail. The dog lunged forward and bit Stephany in the face. The driver took her to a hospital for treatment but left before she could get any further information.

The insured returned home to New Hampshire, where she contacted an attorney. The attorney had no luck in identifying the company or the driver. Some time later the insured filed a claim for uninsured motorist coverage with her auto insurer.

The claim was denied based on the insured's late notice. The insurer also disputed that the taxi was a “hit and run” motor vehicle. The insured filed a petition for declaratory judgment, and both parties moved for summary judgment. The trial court agreed with the insurer with regards to the notice but said it was true that the insured's injury arose from the use of a hit and run vehicle.

The case went to the Supreme Court, which affirmed in part and reversed in part. The court held that the insurer did not meet its burden of proving the late notice prejudiced it. The insured's attorney had attempted to find the taxi, with no success, and there was no evidence that the insurer would have had better luck. (Nothing in the case addresses the delay from the summer of 2000 until the insured filed the claim in January 2001.)

The court then took up two issues raised in the insurer's cross appeal. The first was whether, as a matter of law, the insured's auto policy could be construed to provide coverage for a dog bite when the insured was not actually struck by a hit and run auto. The court held it could.

The policy term “hit and run” was susceptible to more than one interpretation. It could just as easily refer to one causing damages and fleeing as it could to one that stops but leaves no identification at the scene. In another case, the New Hampshire court had determined that a vehicle need not make physical contact with the insured in order to qualify as a hit and run vehicle. Therefore, the taxi qualified as a hit and run vehicle.

The next issue was whether the insured's injuries arose out of the use of the taxi. The court concluded it did. A causal connection, said the court, must exist between use of the vehicle and the resulting harm in order to trigger coverage.

The insurer looked at an earlier case in which a person was loading brochures into an auto and was bitten by the occupant's dog. But here the auto had simply been the site of the injury; and so the bite could not be considered an auto accident. But in the case before the court, the injury was the result of the driver closing the car door, “an act that is part of using the automobile.”

The court affirmed that the taxi was a hit and run vehicle and that the injuries arose from its use and reversed the trial court's decision that lack of timely notice prejudiced the insurer.

Two justices dissented based on Webster's Third New International Dictionary's definition of “hit and run” as “guilty of leaving the scene of an accident without stopping to render assistance or to comply with legal requirements.” The driver did not leave the scene, but rather took the insured to a hospital. Further, there was no evidence the driver attempted to conceal his identity or that the insured was prevented by the extent of her injury from asking for identification.

We bring up this dissent because of the use of a common dictionary—something the editors of FC&S Bulletins do quite frequently. When a policy word or term is not defined, a dictionary is the first reference of choice.

This case is Wilson v. Progressive Northern Insurance Co., 868 A.2d 258 (N.H. 2005).

This Policy Won't Wash

Percy Levesque was helping his son Robert move from Maine to Florida. The two were moving items from Robert's home into his pickup truck. One of the items was an antique washing machine, which did not fit, so the men decided to remove it and put it into a shed to be loaded later.

Because the washer was extremely heavy, Robert removed the wringer first and put it on the floor of the shed. The two men then began to move the washer. Percy was walking backward into the shed and did not see the wringer. He tripped over it and the washer landed on him, resulting in injury.

Robert's homeowners policy excluded coverage for injury arising out of the ownership, maintenance, use, loading, or unloading of a motor vehicle. The homeowners carrier sought declaratory judgment that it was not responsible for Percy's injuries. Robert's auto insurer entered the fray, and the two filed cross-motions for summary judgment. The auto insurer's motion was granted, and the homeowners insurer appealed.

The homeowners insurer argued that the injuries occurred during the unloading of the pickup and were therefore excluded. (In the ISO form, the exclusion is for bodily injury arising out of the ownership, maintenance, use, loading or unloading of motor vehicles.)

The court said that the exclusion was ambiguous as applied to the facts of the situation; the injury occurred on the insured's premises “after unloading was completed and without any physical or causal connection to the vehicle.” The insurer's construction of this language would eliminate coverage for any injury occurring on the premises that was in any way related to loading or unloading a vehicle controlled by the insured.

The court looked at the “complete operation doctrine,” which holds that unloading ceases only when goods reach their final destination and includes all activities that are required to complete delivery. This doctrine was, however, not extremely helpful given the facts in this case, where an act of negligence led to the injury.

Homeowners, continued the court, could face a huge gap in coverage if, say, neighbors helping an insured to unload a vehicle were injured by a negligent act or some defect in the premises. The key to the exclusion, therefore, was that some contact or involvement with the vehicle had to occur.

So saying, the court affirmed the lower court in denying the homeowners insurer's motion for summary judgment.

Two justices dissented, agreeing with an earlier case that “it [was] the activity in which the insured is engaged at the time [of the accident] that provides the temporal and spatial nexus that is determinative of the applicability of [the] exclusion in a homeowner's insurance policy.” Further, continued the justices, the exclusion was not ambiguous—it clearly excluded coverage for injuries arising out of the loading or unloading of a motor vehicle. Because both the father and son admitted that the injury took place while the vehicle was being unloaded, the case should have been remanded to the trial court for entry of judgment declaring that the homeowners insurer owed no duty to defend.

See Foremost Insurance Company v. Levesque, 868 A.2d 244 (Me. 2005) for the complete details.