Another Victory for Insurers Relying on IP Exclusions

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Pinnacle Brokers Insurance Solutions LLC v. Sentinel Insurance Co, Ltd., No. 15-cv-02976-JST, 2015 U.S. Dist. LEXIS 117299 (N.D. Cal. Sept. 2, 2015), arose out of a lawsuit filed by Granite Professional Insurance Brokerage, Inc. (Granite) against Pinnacle Brokers Insurance Solutions LLC and employees of Pinnacle (collectively “Pinnacle”). Granite alleged that Pinnacle conspired to steal its customers and prospective customers by carrying out a series of misleading tactics and misappropriating confidential and trade secret information. The underlying complaint sought damages and injunctive relief and included sixteen counts, including a cause of action for misappropriation of trade secrets.

In response to Sentinel Insurance Company, Ltd.’s (Sentinel) refusal to defend Pinnacle, Pinnacle filed a complaint against Sentinel for breach of contract and the covenant of good faith and fair dealing. After removal to federal court, Sentinel moved to dismiss the complaint on the basis that the IP exclusion barred coverage entirely, relying upon the allegations in the underlying complaint of trade secret infringement. While Pinnacle admitted that the IP exclusion applied to the intellectual property claims, it maintained that Sentinel still had the duty to defend because 1) the IP exclusion did not apply to claims unrelated to intellectual property, 2) the IP exclusion was unclear and unenforceable, and 3) even if the some claims were not covered, the “mixed” nature of the claims triggered Sentinel’s duty to defend.

The court disagreed with all of Pinnacle’s positions and held that Sentinel did not have the duty to defend. First, the court reasoned that application of the IP exclusion did not require a causal connection between the alleged intellectual property violation and the injury. Second, the court held that the language of the IP exclusion was conspicuous and plain. Third, the court reasoned that the underlying lawsuit was not a “mixed” action since the IP exclusion unambiguously foreclosed the possibility of coverage. Hence, since there was no coverage, the plaintiffs’ breach of contract and good faith claims failed.