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In Coverage: Copyright Violations Held Distinct From Breach of Licensing Agreement (NY)

December 23, 2019

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<p style="text-align: justify;">Earlier this week, in <em>McGraw Hill Education, Inc. v. Illinois National Insurance Company</em>, the venerable Honorable Barry R. Ostrager issued a decision upon the unanimous Court that Illinois National must provide insurance coverage in an underlying copyright infringement action, reversing the trial court.</p>
<p style="text-align: justify;">Illinois National had argued that because the underlying infringement claims rested upon specific breaches of licensing agreements (specifically, the unauthorized use and copying in violation of those agreements), the policy exclusion for claims that “arise out of” a breach of contract precluded coverage.  In support of this position, Illinois National pointed out that every challenge to the scope of use of the copyrighted material hinged upon language of the licensing agreements that were in place.  As Illinois National argued, the licensor in the underlying action could not establish infringement without proving the breach of the licensing agreement.</p>
<p style="text-align: justify;">The First Department definitively held otherwise in a decision that is sure to have a reverberating effect on coverage in the infringement context, stating that while it was undeniable that the breach of the license agreements was at issue, because the licensors had a justiciable claim for infringement that could have been brought without the breach of contract claims, the exclusion would not apply, as the infringement claims did not arise “but for” the licensing agreement breaches.</p>
<p style="text-align: justify;">Illinois National also argued that a separate exclusion for claims arising out of the intentional violation of law should bar coverage.  The Court again held otherwise, finding that a separate provision barring coverage for infringement where it was “judicially determined” that the violation was intentionally carried out by a senior executive level employee mooted the insurer’s reliance on the more general provision.  “If there is an inconsistency between a general provision and a specific provision, the specific provision controls.”</p>
<p style="text-align: justify;">The <em>McGraw Hill</em> decision is brief and does not bely the Court’s reasoning on the “but for” nature of the infringement claims, but it puts insurers on notice that intellectual property infringement actions may not be considered breach of contracts by nature when assessing coverage in New York.</p>
<p style="text-align: justify;">Thanks to Vivian Turetsky for her contribution to this post.  Please email <a href="mailto:chayes@wcmlaw.com">Colleen E. Hayes</a> with any questions</p>

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