The Ninth Circuit recently held that Sony, maker of the PlayStation 2 (“PS2”) video game system, does not have coverage under its CGL or media E&O policies for a class action suit in which plaintiffs alleged that their video games and movies skipped or froze.
The plaintiffs alleged that the PS2 had an inherent or fundamental design defect that rendered them unable to play DVDs and certain games. Their allegations against Sony included false advertising and negligent misrepresentation claims related to Sony’s statements in press releases, advertising, product packaging and instruction manuals.
Sony argued that the claims of false advertising and negligent misrepresentation fell under the scope of coverage under its media liability policy for “negligent publication.” The court rejected this argument and held that although the policy does not define “negligent publication,” in the context of its placement in the policy wording, it refers to a “narrow tort” of defective advice and incitement, rather than a broad tort of a different nature. The court also noted that because the policy was a “media liability policy,” its coverage grant was intended for claims normally faced by media publishers and not for product defects. Based on this analysis, the Ninth Circuit held that the lawsuits did not allege “negligent publication” claims and therefore, there was no coverage under the insuring agreement. The court also rejected Sony’s argument that an exception to one of the policy exclusions provided any coverage because an exception to an exclusion does not expand coverage beyond the policy’s coverage grant.
The court also rejected Sony’s claim for coverage under its CGL policy, which provides coverage for “bodily injury” or “property damage” where “property damage” was defined to include both “physical injury to tangible property, including all resulting loss of use of that property” and “loss of use of tangible property that is not injured.” The court rejected Sony’s argument that because the plaintiffs alleged both “loss of use of tangible property” and “physical injury to property,” there was coverage under the CGL policy. Rather, the Ninth Circuit held that the plaintiffs’ problems with skipping and freezing CDs and DVDs that was accompanied by banging or clicking noises did not set forth a “classic” claim for “loss of use” because the discs worked on other devices. Additionally, the court held that even if there was coverage under the insuring agreement of the CGL policy, the claim would be subject to the policy’s exclusion for “property damage to impaired property or property that has not been physically injured, arising out of . . . a defect . . . in Sony’s product.” The court rejected Sony’s contention that the claim would fall under the exclusion’s exception for the loss of use of property ‘arising out of sudden and accidental physical injury to ‘[Sony’s] product’ . . . after it has been put to its intended use,” as the complaints alleged that the problems with the discs could happen at any time and therefore were not “sudden and accidental” but appeared to have deteriorated over time. The court also notes that the complaints did not allege any property damage to the discs.
One justice dissented on the basis that the majority gave an unduly narrow construction to the media liability policy’s “negligent publication” coverage.
Click here to read the Ninth Circuit's opinion.