people talking in front of a courthouseA recent case we handled highlights the importance of reading a complaint’s allegations very carefully. Competitors in high-stakes litigation may file complaints and cross-complaints against each other alleging a variety of intellectual property violations and business torts. These may include patent or copyright infringement, attempted monopolization, unfair competition and interference with contractual relations. On their face, none of these are likely to be covered by commercial insurance. But competitors often cannot resist alleging every conceivable harm, and this may include asserting that the defendant (or cross-defendant) has disparaged the plaintiff to customers and the public. Most general liability policies cover disparagement as part of the “personal and advertising injury” coverage. In California, the broad duty to defend results in valuable coverage for attorneys’ fees and costs in what would otherwise be uncovered litigation.

In our case, the insured filed a complaint alleging that a competitor committed copyright infringement by stealing software code from the insured. The competitor countered with a cross-complaint alleging causes of action for monopolization and attempted monopolization. It claimed that the insured tried to monopolize the market by, among other acts, disparaging the competitor to its customers and prospective customers. The duty to defend arises from the facts alleged, not the causes of action alleged, so those allegations triggered a duty to defend.

California law requires that an insurer must defend the entire case, if it has to defend any part of it, subject to a right of reimbursement. So, the insurer was faced with funding the entire defense of the monopolization claims, not just the disparagement allegations. Moreover, the disparagement was based on the claim that the insured was telling the competitor’s customers and prospective customers that the competitor was infringing the insured’s copyright. The defense of truth to the disparagement allegations, then, incorporated the work on the merits of the insured’s copyright claims. The result in this case was a substantial 7-figure contribution to the insured’s attorneys’ fees and costs to litigate both its copyright infringement claim and the competitor’s antitrust claims.

A few insurers – Chubb and Travelers most notably – have revised the intellectual property exclusion in their CGL policies to try to prevent this result. Most insurers, though, have not and the coverage remains available. Insureds also should check not just their CGL policy, but also any media liability coverage they have. The lesson: read the complaint very carefully for any potentially coverage allegations, especially of disparagement.