IL Fed. Ct.: No Coverage for Trade Secrets Claim

No advertising injury and barred by intellectual property exclusion.

An Illinois federal court, applying Illinois law, held that Sentinel Insurance Co. Ltd. (“Sentinel”) has no duty to defend or indemnify Yorktown Industries, Inc. (“Yorktown”) in a lawsuit alleging misappropriation of customer lists and sales information, because the allegations do not constitute “personal and advertising injury” and, regardless, the claim is barred by an intellectual property exclusion.

Yorktown sells and distributes office supplies.  Sentinel issued an insurance policy to Yorktown for the relevant time period.  The insurance policy, in relevant part, provides coverage for “personal and advertising injury,” which is defined as injury arising out of “[c]opying, in your advertisement or on your website, a person’s or organizations advertising idea or style of advertisement.”  The policy contains an intellectual property exclusion barring coverage for alleged infringement of trade secrets.   The exclusion also bars coverage for “[a]ny injury or damage alleged in any claim or ‘suit’ that also alleges an infringement or violation of any intellectual property right … regardless of whether this insurance would otherwise apply.”

Imaging Technologies Direct, LLC (“ITD”) filed a lawsuit against Yorktown alleging that Yorktown hired ITD employees as independent contractors and stole ITD’s confidential business information, including ITD’s customer list and sales information, and used the stolen information to contact ITD’s customers. (“ITD Lawsuit”).  ITD asserted five causes of action against Yorktown: (1) violation of the Uniform Trade Secrets Act, (2) intentional interference with contractual relations, (3) intentional interference with prospective business advantage, (4) unfair competition, and (5) civil conspiracy.  Yorktown demanded a defense and indemnity from Sentinel for the ITD Lawsuit.  Sentinel denied coverage and then filed a declaratory judgment action and moved for summary judgment.

Sentinel contended that it had no coverage obligations to Yorktown for the ITD Lawsuit because the lawsuit does not allege “personal and advertising injury” or any other claim that falls within the insurance policy’s coverage.  Sentinel also argued that, even if the claims of the ITD Lawsuit constitute “personal and advertising injury”, the intellectual property exclusion bars coverage.  The district court agreed with Sentinel and granted its motion for summary judgment.  According to the district court:  “ITD does not allege that [Yorktown] used any of ITD’s advertising plans, schemes, or designs in contacting customers … Nor does ITD allege that [Yorktown] misappropriated any of ITD’s advertising strategies.”  Therefore, the ITD Lawsuit does not allege “personal and advertising injury.”

The district court also held that, even if ITD did allege “personal and advertising injury”, the intellectual property exclusion would bar coverage.  The district court found that every claim in the ITD Lawsuit was predicated on Yorktown’s alleged misappropriation of ITD’s trade secrets and, thus, the intellectual property exclusion barred coverage.  Sentinel Ins. Co. LTD., v. Yorktown Indus., Inc., No. 14-cv-4212 (N.D. Ill. Feb. 2, 2017).