Finn v. National Union Fire Ins. Pittsburgh

Decision Date02 December 2008
Docket NumberSJC-10153.
Citation896 N.E.2d 1272,452 Mass. 690
PartiesJoseph F. FINN, Jr., assignee,<SMALL><SUP>1</SUP></SMALL> v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PENNSYLVANIA, & another.<SMALL><SUP>2</SUP></SMALL>
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

Steven L. Schreckinger (Jane M. Guevremont, Boston, with him) for the plaintiff.

John D. Hughes, Boston, for the defendants.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, CORDY,

& BOTSFORD, JJ.3

SPINA, J.

This case requires us to construe an exclusion barring coverage for "any claim arising out of any misappropriation of trade secret" in a professional liability policy issued by the defendant, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union), to the plaintiff, Uniscribe Professional Services, Inc. (Uniscribe). After settling a claim with a client from whom sensitive documents were taken while in Uniscribe's care, Uniscribe commenced an action seeking a declaratory judgment that National Union had a duty to defend and indemnify Uniscribe for the settlement.4 National Union moved for judgment on the pleadings, see Mass. R. Civ. P. 12(c), 365 Mass. 754 (1974), arguing that its policy excluded claims arising out of the misappropriation of trade secrets (intellectual property exclusion), wrongful acts committed with the knowledge that it was a wrongful act (knowing wrongful acts exclusion), and criminal acts (criminal acts exclusion). Uniscribe opposed National Union's motion and moved for partial summary judgment, seeking, inter alia, a declaration that the client's claims against Uniscribe were covered by National Union's policy. See Mass. R. Civ. P. 56, as amended, 436 Mass. 1404 (2002). A judge in the Superior Court concluded that while neither the knowing wrongful acts exclusion nor the criminal acts exclusion applied, the intellectual property exclusion precluded coverage. Judgment entered in favor of National Union on Counts I, II, and III.5 Uniscribe appealed and we granted its application for direct appellate review. We hold that the intellectual property exclusion bars coverage and now affirm.6

1. Standard of review. The parties' motions as to coverage, although brought under different rules,7 addressed themselves to the same subject matter and were, as a practical matter, cross motions for summary judgment. See 5C Wright & Miller, Federal Practice and Procedure: Civil 3d § 1369, at 261-262 (2004) ("standard applied by the court appears to be identical under both [rule 12(c) and rule 56] motions").

The interpretation of an exclusion in an insurance contract presents a question of law. See Fuller v. First Fin. Ins. Co., 448 Mass. 1, 5, 858 N.E.2d 288 (2006). While the insured bears the burden of establishing coverage, Tumblin v. American Ins. Co., 344 Mass. 318, 320, 182 N.E.2d 306 (1962), the burden is on the insurer to establish the applicability of an exclusion. Hanover Ins. Co. v. Talhouni, 413 Mass. 781, 785, 604 N.E.2d 689 (1992).

2. Facts. The following facts are drawn from the complaint and supplemented by undisputed facts in the record.8 Uniscribe provided records management, document imaging, and electronic printing services to law firms and corporations. National Union issued to Uniscribe an errors and omissions policy. Under the policy, National Union agreed:

"[t]o pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as Damages resulting from any claim or claims first made against the Insured and reported to the Company during the Policy Period for any Wrongful Act of the Insured or of any other person for whose actions the Insured is legally responsible, but only if such Wrongful Act first occurs during the Policy Period and solely in the conduct of the Insured's Profession as stated in Item 6 of the Declarations."

Item 6, which amended the last sentence of the coverage provision, states: "Soley [sic] in the performance of providing records management, document imaging, litigation support, graphics and trial support, and electronic printing services for others for a fee."

The policy defined "Wrongful Act" as "any actual or alleged breach of duty, neglect, error, misstatement, misleading statement or omission committed solely in the conduct of" Uniscribe's profession as specified above.

Indorsement 6 to the policy provided that coverage did not apply to "to any claim arising out of any misappropriation of trade secret or infringement of patent, copyright, trademark, trade dress or any other intellectual property right."

In 2002, the Los Angeles office of the law firm Jones Day hired Uniscribe to provide litigation support services in connection with the representation of its client, DirecTV. Three Uniscribe employees were assigned to work on the DirecTV case at the Jones Day office. Jones Day would not allow documents related to the DirecTV litigation to be removed from its office and the employees signed agreements pledging to maintain the confidentiality of information entrusted to them by Jones Day.

In September, 2002, when the employees were unable to meet Jones Day's deadlines, a Uniscribe supervisor authorized an employee working on the DirecTV project to bring his nephew to assist the Uniscribe employees in meeting Jones Day's deadlines. The nephew worked for approximately ten days and was paid cash by his uncle, who recorded the nephew's hours as overtime. During this period, the nephew came across documents containing confidential trade secret information from DirecTV and sent that information to a Web site to help the "hacker" community.

In January, 2003, Jones Day notified Uniscribe of the disclosure. Uniscribe promptly notified National Union of the incident, indicating that Jones Day had written off a substantial legal fee for services it had performed for DirecTV and that Jones Day "may eventually look to [Uniscribe] to compensate them for this matter." National Union, through its claims handler, A.I.G. Technical Services (A.I.G.), disclaimed coverage based on the intellectual property exclusion.

In March, 2003, a Jones Day attorney wrote to Uniscribe, demanding that Uniscribe reimburse Jones Day for $1,471,992.84 in losses it had sustained as a result of the disclosure. In May, 2003, Uniscribe urged A.I.G. to reconsider its position that the intellectual property exclusion barred coverage. A.I.G. again disclaimed coverage.

By November, 2004, Jones Day's patience with Uniscribe's efforts to resolve the coverage dispute with National Union had been exhausted. Jones Day informed Uniscribe by letter that it would no longer defer pursuit of its claims against Uniscribe and gave Uniscribe five days to consider a settlement proposal under which Uniscribe would pay Jones Day $1.5 million over a five-year period. Uniscribe forwarded Jones Day's letter to A.I.G. A.I.G. did not respond. Given the time constraints on Jones Day's offer and the anticipated costs of defending itself in litigation, Uniscribe negotiated a settlement agreement with Jones Day in which Uniscribe agreed to pay Jones Day $1,175,000 over five years.

3. Discussion. At issue is whether the intellectual property exclusion unambiguously excludes coverage where a third party has misappropriated a trade secret.9 We conclude that it does.

In the interpretation of insurance contracts, we are guided by several well-established principles. "Language in an insurance policy must be given its ordinary meaning ... and construed in the sense that the insured will reasonably understand to be the scope of his coverage." Slater v. United States Fid. & Guar. Co., 379 Mass. 801, 803, 400 N.E.2d 1256 (1980). Although an exclusionary clause is construed narrowly, see Commerce Ins. Co. v. Betty Caplette Bldrs., Inc., 420 Mass. 87, 93, 647 N.E.2d 1211 (1995), "[w]e are not free to revise it or change the order of the words." Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 147, 461 N.E.2d 209 (1984). Thus, "[a] policy of insurance whose provisions are plainly and definitely expressed in appropriate language must be enforced in accordance with its terms." Hyfer v. Metropolitan Life Ins. Co., 318 Mass. 175, 179, 61 N.E.2d 3 (1945), quoting Stankus v. New York Life Ins. Co., 312 Mass. 366, 369, 44 N.E.2d 687 (1942). "If in doubt, we `consider what an objectively reasonable insured, reading the relevant policy language, would expect to be covered.'" A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 Mass. 502, 518, 838 N.E.2d 1237 (2005), quoting Trustees of Tufts Univ. v. Commercial Union Ins. Co., 415 Mass. 844, 849, 616 N.E.2d 68 (1993).

We have considered whether the language of a particular exclusion extends to third-party conduct on two prior occasions. See Bagley v. Monticello Ins. Co., 430 Mass. 454, 720 N.E.2d 813 (1999); Liquor Liab. Joint Underwriting Ass'n of Mass. v. Hermitage Ins. Co., 419 Mass. 316, 644 N.E.2d 964 (1995).

In Liquor Liab. Joint Underwriting Ass'n of Mass. v. Hermitage

Ins. Co., supra, we considered the applicability of an assault and battery exclusion under a special multi-peril policy providing coverage for "an accident ... which results in bodily injury or property damage neither expected nor intended from the point of view of the insured." Id. at 318, 644 N.E.2d 964. The exclusion provided that an "[a]ssault and/or battery shall not be deemed an accident under the ... policy, nothing in the policy to the contrary." Id. The underlying liability action involved the assault of a patron of a business serving alcohol by another patron. Id. The injured patron sued the business, alleging negligence in not providing adequate security. Id. at 317, 644 N.E.2d 964. We held that the insurer had a duty to indemnify the insured because the exclusion was "susceptible of at least two rational interpretations, the one placed on it by [the insurer], that the provision excludes any coverage for a negligence claim related to an assault and battery,...

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