Tzumi Electronics LLC v. The Burlington Insurance Company

Background

Tzumi Electronics LLC sought a declaration that The Burlington Insurance Company had a contractual duty to defend Tzumi in Therabody, Inc. v. Tzumi Electronics LLC, a separate patent-infringement case. Burlington moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the insurance policy did not cover the underlying lawsuit and that coverage was excluded by a rider. Tzumi filed a cross-motion for partial summary judgment.

Burlington had issued Tzumi a commercial general liability policy effective December 19, 2020, through December 19, 2021. The policy included coverage provisions for certain personal or advertising injuries, including publication that disparages goods, products, or services and use of another’s advertising idea in an advertisement. It also included an intellectual-property exclusion and a separate intellectual-property rider.

The rider stated that the policy did not apply to claims for “any injury or damage” caused by or arising from the actual or alleged infringement or violation of intellectual-property rights or laws, including patents. The underlying lawsuit’s operative complaint alleged fourteen patent-infringement claims and stated that it was an action for patent infringement under federal patent law. It sought damages and other relief tied to the alleged infringement.

Court’s Analysis

Under New York law, an insured first must show that a loss falls within the policy’s coverage. If it does, the insurer must show that an exclusion applies. Because an insurer’s duty to defend is broader than its duty to indemnify, an insurer relying on an exclusion must show that the underlying complaint falls entirely within the exclusion and cannot reasonably be interpreted otherwise.

The court concluded that Tzumi’s coverage claim failed as a matter of law under the intellectual-property rider. The rider was prominently identified as an exclusion and as an endorsement that changed the policy. Its reference to “any injury or damage” included the policy provisions on which Tzumi relied. The underlying complaint alleged only patent-infringement claims, and the damages and other relief arose from those alleged infringements. The allegations therefore fell squarely within the rider.

The court did not decide whether Tzumi could initially establish coverage or whether the separate intellectual-property exclusion independently barred coverage. Those questions were unnecessary because the rider alone excluded coverage. The court rejected Tzumi’s arguments that the rider conflicted with the separate exclusion, that the underlying complaint supported implied disparagement or unfair-competition claims, and that “arising out of” required proximate cause. Under New York law, that phrase ordinarily means originating from, incident to, or having a connection with, and requires some causal relationship rather than necessarily proximate cause.

Disposition

Judge Jesse M. Furman granted Burlington’s motion to dismiss. The court denied Tzumi’s cross-motion for partial summary judgment as moot. It directed the clerk to enter judgment consistent with the opinion and order and to close the case.