Finn v. National Union Fire Insurance Co. of Pittsburgh

Citation: 452 Mass. 690

Court: Massachusetts Supreme Judicial Court; December 2, 2008; Massachusetts; State Supreme Court

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The case involves the interpretation of an exclusion in a professional liability policy issued by National Union Fire Insurance Company to Uniscribe Professional Services, Inc. The exclusion bars coverage for any claims arising from the misappropriation of trade secrets. After Uniscribe settled a claim related to the unauthorized taking of sensitive documents, it sought a declaratory judgment asserting that National Union had a duty to defend and indemnify it. National Union contended that the policy's exclusions—specifically, the intellectual property exclusion, the knowing wrongful acts exclusion, and the criminal acts exclusion—prevented coverage. 

The Superior Court found that while the knowing wrongful acts and criminal acts exclusions did not apply, the intellectual property exclusion did bar coverage, resulting in judgment for National Union. Uniscribe appealed, and the appellate court affirmed the lower court's ruling, upholding that the intellectual property exclusion precluded coverage. 

The court noted that the motions from both parties functioned as cross motions for summary judgment, with the standard of review being similar for both. The interpretation of the exclusion is a legal question, with the insured bearing the burden to prove coverage and the insurer responsible for demonstrating the applicability of exclusions. Uniscribe's services included records management and electronic printing, which were defined within the insurance policy alongside the definition of "Wrongful Act" as breaches or errors occurring during the conduct of its professional services.

Indorsement 6 of the policy excludes coverage for claims related to the misappropriation of trade secrets or infringement of intellectual property rights. In 2002, Jones Day hired Uniscribe for litigation support for DirecTV, where Uniscribe employees were required to keep documents confidential. When deadlines were unmet, a Uniscribe supervisor permitted an employee's nephew to assist, leading to the unauthorized disclosure of DirecTV's trade secrets to a website. Jones Day informed Uniscribe of this breach in January 2003, indicating potential financial liability. National Union, through A.I.G., denied coverage under the intellectual property exclusion. In March 2003, Jones Day demanded $1,471,992.84 in damages from Uniscribe, which prompted Uniscribe to seek reconsideration from A.I.G., but coverage was again denied. By November 2004, Jones Day sought to settle the dispute, offering a $1.5 million payment plan, but after no response from A.I.G., Uniscribe settled for $1,175,000. The key legal issue is whether the intellectual property exclusion applies to third-party misappropriation of trade secrets, which is concluded to be the case. Insurance policy language must be interpreted in its ordinary meaning, and exclusionary clauses are to be enforced as written without alteration.

An objectively reasonable insured's expectations regarding coverage are central to interpreting policy language. Previous cases analyzed the applicability of exclusions related to third-party conduct. In *Liquor Liability Joint Underwriting Association of Mass. v. Hermitage Ins. Co.*, the court found that an assault and battery exclusion was susceptible to multiple interpretations, which led to a duty for the insurer to indemnify the insured for a negligence claim related to a patron's assault. Conversely, in *Bagley v. Monticello Ins. Co.*, the court determined that a broad exclusion for claims arising from statutory violations unambiguously applied to all related conduct, not limited to the insured's actions. The intellectual property exclusion’s language—specifically, "any claim arising out of any misappropriation of trade secret"—is scrutinized for ambiguity regarding third-party conduct. The insurer, National Union, argued that this exclusion clearly covers all claims of misappropriation, while Uniscribe contended its ambiguity due to a lack of explicit reference to third-party actions. However, the phrase "arising out of" is interpreted broadly, indicating that the exclusion encompasses third-party claims. The court concluded that Uniscribe's reasonable expectations need not be considered, as the exclusion's language clearly denies coverage. The court also addressed whether Jones Day's damages were causally linked to the nephew's misappropriation of DirecTV's trade secrets, ultimately determining that such a connection existed, as there was no evidence that Jones Day would have incurred losses without the nephew's actions.

The order affirming National Union's motion for judgment on the pleadings and denying Uniscribe's motion for summary judgment is upheld. National Union had no duty to defend or indemnify Uniscribe, leading to the denial of Uniscribe's request for attorney's fees. The case is remanded to the Superior Court for further proceedings on Counts VI and VII of the amended complaint, which address Uniscribe's recovery of amounts paid under a settlement agreement and additional costs incurred. Count I seeks a declaratory judgment regarding National Union's obligations to defend and indemnify, while Count II alleges breach of contract. Count III claims a breach of the implied covenant of good faith. Counts IV and V, which involve waiver and estoppel claims, were rejected without a judgment entered. Counts VI and VII allege violations of Massachusetts and Connecticut unfair trade practices laws, respectively, focusing on the wrongful application of exclusions without proper investigation. The court finds the intellectual property exclusion sufficient to deny coverage, making it unnecessary to consider the criminal acts exclusion. The document outlines the legal standards for motions under Mass. R. Civ. P. 12(c) and summary judgment, clarifying the burden of proof and the relevance of disputed facts. It also addresses the definition of 'insured' under the policy, concluding that the nephew is assumed not to be an insured. Liability exclusions related to watercraft are clearly stated, and the judge's ruling on the merger provision of the policy and the non-ambiguity of the intellectual property exclusion is affirmed.