The U.S. Eleventh Circuit Court of Appeals upheld summary judgment in favor of an insurer where it found the insurer’s denial of coverage was proper due to the insured’s failure to allocate settlement amounts between covered claims and non-covered claims. Highland Holdings, Inc. v. Mid-Continent Casualty Company, 2017 WL 1628953 (11th Cir. May 2, 2017).
The insured, a home design and development group, had a liability policy covering damages the insured became obligated to pay due to personal and advertising injury that included “injury arising out of the infringing upon another’s copyright, trade dress or slogan in your advertisement.” An advertisement was defined as “a notice that is broadcast or published to the general public … about your goods, products or services for the purpose of attracting customers….” The insured infringed on copyrights for a home design-schematic created and owned by another home development group. Over a six-year period, the insured built and sold multiple homes based on the copyrighted schematics, and the other group sued. The insured tendered its claim to the insurer which defended the claim until the insured rejected the defense and settled with the development group. The insured sought indemnity, and the insurer denied coverage based on the insured’s failure to allocate its damages among covered claims and non-covered claims. The insured sued the insurer for breach of contract for failure to indemnify and the insurer counterclaimed for declaratory judgment that indemnification was not owed.
The district court granted summary judgment for the insurer, finding it owed no duty to indemnify the insured for the settlement amount because the settlement agreement resolved “all claims” against the insured, not just those for “advertising injury.” The district court rejected the insured’s argument that the infringement of the schematic plan by the insured was an advertisement as defined by the policy, precluding coverage for claims arising solely out of the copyright infringement. On appeal, the Eleventh Circuit affirmed, finding that the schematic plan itself was not an “advertisement” and that the insured failed to show that an “advertising injury” was caused by using the infringing models to market the insured’s business.