Hurricane Electric, LLC v. National Fire Insurance Company of Hartford

Background

Hurricane Electric, LLC received a cease-and-desist letter from a law firm representing copyright owners. The letter alleged that Hurricane had failed to respond to more than 290 infringement notices involving its subscribers and asked Hurricane to terminate certain services and pay part of the claimed damages. Later communications alleged that Hurricane itself contributed to the subscribers’ alleged infringement by routing data and providing Internet service.

Hurricane notified National Fire Insurance Company of Hartford, its insurer, and sought coverage for costs associated with two declaratory-relief actions concerning the copyright allegations. No lawsuit had been filed when Hurricane notified National Fire. National Fire denied coverage and declined to attend a mediation between Hurricane and the copyright claimants.

The insurance agreement required National Fire to pay covered damages for “personal and advertising injury” and to defend Hurricane against a qualifying “suit.” The agreement defined “suit” as a civil proceeding, arbitration proceeding, or other alternative-dispute-resolution proceeding in which covered damages were claimed. It also excluded personal-and-advertising injury arising from copyright infringement, except for infringement of copyright in Hurricane’s advertisement.

Motions and Legal Standard

National Fire moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). That motion asks whether the pleadings show that no material factual issue remains and that the moving party is entitled to judgment as a matter of law. Hurricane moved for partial summary judgment on National Fire’s duty to defend.

The court applied California law to interpret the insurance agreement. Under that law, an insurer must defend when a suit against the insured seeks damages that potentially fall within the policy’s coverage. The court compared the allegations and the policy terms.

Court’s Analysis

The court held that the cease-and-desist letter was not a “suit” under the agreement. It was not an arbitration or alternative-dispute-resolution proceeding, and it did not begin a civil proceeding because no complaint had been filed. The court characterized the letter as, at most, a claim rather than a suit, and concluded that National Fire had no duty arising from the letter.

The court also rejected Hurricane’s argument that the mediation qualified as a suit. The policy required Hurricane to submit to the alternative-dispute-resolution proceeding with National Fire’s consent. National Fire had denied coverage, declined to participate, and had not stated or implied consent. The court therefore concluded that the mediation did not qualify as a suit under the policy.

The court identified an independent reason that Hurricane could not obtain reimbursement. The copyright allegations did not allege infringement in Hurricane’s advertisements. Instead, they alleged that Hurricane’s subscribers directly infringed and that Hurricane contributed to the infringement by providing Internet services and facilities. The court stated that a connection between advertising and services that enabled infringement was not an allegation of infringement in the advertisements themselves.

Disposition

The court granted National Fire’s motion for judgment on the pleadings and denied Hurricane’s motion for partial summary judgment. The court denied Hurricane’s requested declaratory relief on both grounds: there was no qualifying suit, and the related declaratory-relief actions did not involve covered copyright infringement in Hurricane’s advertisements.