June 08, 2009 : New York's Appellate Division Upholds Dismissal of Action Against Insurer

An insurer was justified in disclaiming coverage for a copyright infringement action where the allegations in the complaint did not allege "advertising injury," according to the New York Appellate Division, First Department. The appellate court upheld the trial court's grant of summary judgment to Public Service Mutual Insurance Company.

In the underlying action, Quest Beads & Cast alleged that Public Service Mutual Insurance Company's insured, Axelrod & Co., infringed its copyright by manufacturing and selling charms created by Quest.  After the complaint was filed, Axelrod sought coverage from PSM, which denied coverage because there was no allegation that the alleged infringement occurred in the course of the insured’s advertising of goods, as required by the general liability insurance policy.  Based on PSM’s disclaimer, Quest filed an amended complaint specifically alleging that Axelrod’s advertising, in the form of its product catalog, infringed its copyright.  However, Axelrod never sent the amended pleading to PSM for consideration of coverage.  Axelrod eventually settled the case, and then sued PSM for coverage.  Axelrod sought reimbursement of $325,000 in settlement costs and attorneys fees.

The key issue was whether the catalog attached to the complaint, which contained images of the allegedly infringing charms, could lead to the inference that the infringement took place in the course of advertising. The Appellate Division held that the pleading was expressly limited to damage from the manufacture and sale of allegedly infringing works, and agreed with our argument that Quest attached the catalog by way of comparison merely to evidence the infringing manufacture and sale of charms. The court further held that Axelrod’s failure to provide the amended complaint to PSM defeated its argument that the revised pleading triggered coverage.

Partner Michael S. Savett, who litigated the case in the trial court, briefed the appeal and partner Kenneth M. Portner argued the matter before the First Department panel.

A copy of the Appellate Division decision can be accessed through the New York State Law Reporting Bureau.

File Under: Results, Insurance, Kenneth M. Portner, Michael S. Savett