The insured, a service and maintenance provider for computer equipment manufactured by Storage Technology Corporation (“StorageTek”), competed directly with StorageTek for rights to service and maintain StorageTek equipment. StorageTek filed suit against the insured in the United States District Court of Massachusetts for unfair competition and tortious interference with StorageTek’s business relations. The underlying complaints alleged, among other things, that the insured sent false and misleading marketing materials to customers and potential customers which intentionally misrepresented that the insured had a license to use StorageTek’s copyright protected maintenance codes.
The insured notified its insurer of the claim and requested coverage because the policy covered claims for “‘personal and advertising injury’ caused by an offense arising out of your business.” The insurer declined to defend, citing a policy exclusion for “‘personal and advertising injury’ [c]aused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury,’” (“the Exclusion”).
The underlying action settled and the insured filed suit against the insurer for breach of contract and a declaratory judgment that the insurer had a duty to defend. The trial court held that the insured failed to demonstrate that the claims alleged in the underlying complaint were covered by the policy’s definition for “personal and advertising injury” and, even if the claims met that definition, they were excluded from coverage under the Exclusion.
In affirming, the Appellate Court held that the Exclusion at issue precluded coverage for intentional conduct. In its analysis of whether the Exclusion applied, the Appellate Court refused to consider a finding made by the District Court in the underlying action that the insured’s use of StorageTek’s code was permitted under the doctrine of fair use and that the insured committed no copyright violation. Citing Shelter Mutual Ins. Co. v. Ballew, 203 S.W.3d 789, 792 (Mo.App.W.D. 2006), the Court noted that “whether [the] underlying petitions have alleged a claim that is covered by the terms of the insurance policy is not dependent on a factual determination of the underlying claims.” In Missouri, the duty to defend is based on a comparison of the policy language to the allegations in complaint, “whether groundless or valid.”
