An intellectual property exclusion in a Travelers Cos. Inc. unit’s insurance policy was ambiguous, said a federal appeals court Wednesday in overturning a lower court’s ruling in the Travelers’ favor in a coverage dispute.

The 9th U.S. Circuit Court of Appeals in San Francisco held in My Choice Software LLC et al. v. Travelers Casualty Insurance Co. of America that it was not clear from the exclusion’s language that it applied also to IP-related allegations brought solely by the insured itself, as opposed to allegations asserted against the insured.

According to the complaint in the case, David Mumme, chief executive officer of Laguna Hills, California-based My Choice Software, allegedly had sent “disparaging and libelous” communications to a competitor’s vendors and/or business partners. 

The competitor filed suit against My Choice and Mr. Mumme, and the litigation was eventually settled for an undisclosed amount. Travelers, which had issued the company a commercial general liability policy, initially agreed to defend the case subject to a reservation of rights, but then withdrew, citing its coverage’s intellectual property exclusion.

My Choice and Mr. Mumme filed suit against Travelers in U.S. District Court in Pasadena, which granted Travelers summary judgment dismissing the case.

The ruling was overturned by a unanimous three-judge appeals court panel. 

“The cases relied upon by the district court, and those cited by Travelers in this appeal, do not address the question of whether the language of the IP exclusion unambiguously bars coverage for IP-related allegations brought solely by the insured itself, as opposed to allegations asserted against the insured,” the ruling said. 

“The district court erred in concluding that the IP exclusion unambiguously” does so, it said. It is “reasonable for an insured under the policy to interpret the exclusionary provision as applying only to allegations asserted against it in the absence of explicit language stating otherwise,” it said.

Pointing to another ruling, the decision states, “as the exclusionary clause in that case demonstrates, Travelers could have added additional language that would have clearly and unambiguously applied to allegations brought solely by the insured, but it failed to do so. 

“In the face of this omission, we apply the California contract law principal that ‘ambiguities are generally construed against the party who caused the uncertainty to exist (i.e., the insurer) in order to protect the insured’s reasonable expectations of coverage,’” the ruling said, in citing an earlier case and reversing the lower court’s decision.  The case was remanded for further proceedings.

Attorneys in the case had no comment or could not be reached.

Earlier this week, a federal appeals court reversed a lower court decision and ruled in favor of a Travelers Cos. Inc. unit in a dispute over damages associated with an underground fuel storage tank.