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(Article from Insurance Law Alert, July/August 2020)

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A New Jersey appellate court ruled that copyright infringement claims alleged covered “advertising injury,” triggering the insurer’s duty to defend.  Superior Integrated Solutions, Inc. v. Mercer Ins. Co. of N.J., No. A-1027-18T4 (N.J. App. Div. July 10, 2020).

Superior, a software application developer, was sued by a competitor for copyright infringement of a computer program used by car dealerships.  The complaint alleged that Superior made an unauthorized copy of a file and actively solicited customers to use Superior’s services, resulting in substantial harm to the competitor.  Superior sought coverage under a provision that covered “Advertising Injury arising out of an offense committed in the course of advertising goods, products, or services of your business/operations.”  Mercer Insurance refused to defend, citing several policy exclusions.  A New Jersey trial court granted Superior’s summary judgment motion, ruling that the underlying complaint alleged covered advertising injury and that none of the exclusions barred coverage.  The appellate court affirmed.

The court rejected Mercer Insurance’s assertion that there was no coverage because Superior never engaged in “advertising” and instead only engaged in “selling” of its services through use of a competitor’s copyrighted program.  The court explained that the underlying allegation that Superior “profited from its theft of [a competitor’s] [copyrighted] intellectual property by selling integration services made possible only by its copy infringement” alleged a claim of advertising activity.  The court also rejected the contention that the infringement must occur within an advertisement itself.