Scottsdale wins in D&O litigation based on IP exclusion

It is “common sense” that Scottsdale Indemnity Co. is not obligated under a policy exclusion in its directors and officers liability insurance policy to defend a travel agency charged with misappropriating trade data, says a federal district court.

Orlando, Florida-based Benjamin & Brothers LLC was sued by a competing independent online travel agency for misappropriating trade secret data, according to court papers in Benjamin & Brothers LLC v. Scottsdale Indemnity Co.

Scottsdale had issued a D&O policy to the company that provided a $2 million maximum aggregate coverage.

The insurer refused to provide a defense in the litigation, and B&B filed suit in U.S. District Court in Orlando charging breach of contractual duty to defend, according to court papers.

The district court ruled in Scottsdale’s favor in Wednesday’s decision, based on the D&O policy’s intellectual property exclusion. “The Plaintiff argues that Scottsdale is obligated to defend it against the misappropriation suit and that a distinction must be drawn between the duty to defend and the duty to indemnify,” said the ruling.

“According to the Plaintiff the Intellectual Property Exclusion is only applicable to the duty to indemnify, and not the broader duty to defend.

“The plaintiff goes so far as to state that the duty to defend imposed by the Policy is ‘unqualified.’ But such a conclusion would lead to absurd results,” said the ruling.

“Common sense prevents the Court from construing the Policy to impose on the Insurer a duty to defend against literally any claim. Looking at the Policy as a whole, it is clear that Scottsdale’s duty to defend is limited by the exclusionary clauses,” said the decision, in dismissing the complaint.

Neither an insurer spokesman nor B&B’s attorney could immediately be reached for comment.

In January, a federal appeals court affirmed a lower court ruling that Scottsdale Insurance Co. must pay more than $3 million to a plumbers pension fund under a business and management indemnity policy issued to a real estate fund.