In Sentinel Insurance Co. v. Yorktown Industries, Inc., the claimant filed an underlying action against the insured alleging that the insured hired the claimant’s employees, stole the claimant’s confidential business information, including its customer list and sales information, and used claimant’s confidential business information to contact and solicit claimant’s customers and divert sales from claimant to the insured.

The underlying action asserted causes of action for violation of the Uniform Trade Secrets Act, intentional interference with contractual relations, intentional interference with prospective business advantage, unfair competition and civil conspiracy. The insurer denied the insured’s tender of defense and indemnity and then filed a declaratory judgment action and subsequent motion for summary judgment.

The policy at issue provided coverage for “personal and advertising injury,” which was defined, in part, as injury arising out of “Copying, in your ‘advertisement’ or on ‘your web site,’ a person’s or organization’s ‘advertising idea’ or style of ‘advertisement.’” “Advertisement” was defined as “the widespread public dissemination of information or images that has the purpose of inducing the sale of goods, products or services through” radio, television, billboard, magazine, newspaper, the internet, or “[a]ny other publication that is given widespread public distribution.”  “Advertising idea” was defined as “any idea for an ‘advertisement.’”

The insured argued that the insurer owed it a duty to defend because the claimant alleged that the insured copied its “advertising idea” by using the claimant’s sales statistics and other data to contact customers to offer similar products. The court found that this did not constitute copying of an “advertising idea,” as the underlying action neither alleged that the insured used any of the claimant’s advertising plans, schemes or designs in contacting customers, nor that the insured misappropriated any of the claimant’s advertising strategies.

The court also found that the underlying action did not allege any injury sustained by the copying of the customer list or other trade secrets in an “advertisement.” The underlying action alleged that the insured used the customer list to contact customers individually, not that the insured publicly disseminated the customer list or proprietary business information to promote its goods and services or to attract customers. Thus, the court held that the insurer had no duty to defend under the “personal and advertising injury” coverage.

The court also found that because all of the claims were premised on, and would not exist independently of, the insured’s alleged trade secrets violations, the exclusion for “personal and advertising injury” “arising out of any actual or alleged infringement or violation of any intellectual property right, such as…trade secret” precluded coverage. The court noted that, to the extent one or more of the claims did not arise out of an intellectual property violation, the exclusion still applied because it also precluded coverage for “any injury or damage alleged in any claim or ‘suit’ that also alleges an infringement or violation of any intellectual property right, whether such allegation of infringement or violation is made by you or by any other party involved in the claim or ‘suit,’ regardless of whether this insurance would otherwise apply.”

This decision demonstrates that where the policy defines an “advertisement” as widespread public dissemination or distribution, one-on-one solicitation will not fall within that definition. Moreover, it demonstrates that courts will broadly apply the intellectual property exclusion to preclude coverage for claims that are premised on, and would not exist independently of, an intellectual property violation.