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Second Circuit to Decide Whether ‘Grammarian’s Argument’ Governs IP Exclusion

March 26, 2020

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<p style="text-align: justify;">In a prior Of Interest <em><a href="">post</a>,</em> we highlighted a Southern District of New York opinion in which the court held a policy’s IP exclusion barred coverage for an underlying lawsuit in which Hartford’s insured Spandex House was sued for copyright infringement.  The parties have now filed their appellate <em><a href="">brief</a></em> in the Second Circuit, narrowing the issues before the Appellate Court.</p>
<p style="text-align: justify;">The exclusion at issue bars coverage for personal and advertising injury arising out of “any actual or alleged infringement or violation of any intellectual property right,” including copyright and trademark, and “any injury or damage alleged in any claim or suit that also alleges an infringement or violation of any intellectual property right.”  In this way, the IP Exclusion excludes from coverage cases that include <em>any</em> allegation of an IP violation.  The District Court found that this exclusion was unambiguous and applicable.  Notably, in between the District Court’s decision and this appeal, the Second Circuit also upheld the unambiguous terms of the IP Exclusion in <em>Lepore v. Hartford Fire Ins. Co.</em>, 2020 WL 598539 (2d Cir. Feb. 7, 2020).</p>
<p style="text-align: justify;">In light of the fact that the exclusion is likely unambiguous, Spandex House spends much of their brief arguing that the <em>exception</em> to the IP Exclusion applies.  In so doing, they rely on what Hartford classifies as a “grammarian’s argument” that distorts the plain text of the exclusion.  The Advertising Exception at issue provides that the IP Exclusion does not apply if the suit alleging the violation is limited to “Infringement, in your ‘advertisement’ or on ‘your web site’, of: (a) Copyright….”</p>
<p style="text-align: justify;">Spandex House argues that the that “the clause ‘in your advertisement or on your website’” can be “removed from the sentence without changing its basic meaning.”  In other words, they argue that the exception applies when the suit alleging the violation is limited to “infringement” and not “infringement in your advertisement.”  As Hartford points out, such a reading would give the exception an unlimited meaning, and prevent the IP Exclusion from applying where the suit contained all types of copyright and trademark infringement claims, so long as all of the claims were in fact were for “infringement.”</p>
<p style="text-align: justify;">Hartford’s brief keenly points out a prominent example of where Spandex House’s reading would have an absurd effect if implemented.  The 26<sup>th</sup> Amendment provides that “The right of citizens of the United States, who are eighteen years of age or older, to vote shall not be denied or abridged by the United States or by any State on account of age.”  Under Spandex House’s logic, the clause “who are eighteen years of age or older” is a so-called “nonrestrictive relative clause” which can be removed without changing the clause’s meaning.  Of course, had this been the interpretation of the 26<sup>th</sup> Amendment, toddlers would have the right to vote alongside their grandparents.</p>
<p style="text-align: justify;">Given their recent decision in <em>Lepore</em>, the Second Circuit is very likely to find that the IP Exclusion is unambiguous.  We are hopeful that the Court will not also distort the plain language of an exception to find coverage where the drafters plainly intended there be none.  We will keep you apprised of the decision when it is handed down.</p>
Thanks to Douglas Giombarrese on his contribution to this post.  Please email <a href="">Georgia Coats</a> with any questions.


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