A federal court in California recently granted an insurer’s motion for summary judgment on the grounds that Netscape’s use of SmartDownload software, a software program designed to facilitate user downloads, was in fact an excluded “online activity” under the terms of the insurer’s general liability policy. Netscape Communications Corp. v. Federal Ins. Co., No. 06-00198 (N.D. Cal. Oct. 10, 1007).

The underlying lawsuits against Netscape (there were four suits with near-identical allegations) alleged that Netscape (and parent company AOL) violated the Electronic Communications Privacy Act and the Computer Fraud and Abuse Act by utilizing information about users’ Internet activities obtained from the SmartDownload software for purposes of targeted advertising. Netscape and AOL tendered the complaints to its insurers, who denied coverage and denied a defense based on the exclusion for “online activities” which provided that “. . . all Online Activities are excluded from these coverages”(certain insurers have since settled). “Online Activities” is defined in relevant part as “providing e-mail services, instant messaging services, 3rd party advertising, supplying 3rd party content and providing internet access to 3rd parties . . . .”

The court held that, despite an insurer’s broad duty to defend and Netscape’s argument that the “online activity” exclusion is not triggered because SmartDownload did not involve “providing internet access to third parties,” the insurers were correct in their denial based on this exclusion. In so holding, the court held that the scope of the exclusion was sufficiently broad that the act of “providing software that facilitated the ability of users to make use of the Internet” by facilitating the downloading of large files was excluded since it was an example of providing of Internet access to third parties.

A full copy of the court’s decision is available here.