NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1027-18T4
SUPERIOR INTEGRATED
SOLUTIONS, INC.,
Plaintiff-Respondent,
v.
MERCER INSURANCE COMPANY
OF NEW JERSEY, INC.,
Defendant/Third-Party
Plaintiff-Appellant,
v.
EVANSTON INSURANCE
COMPANY a/k/a MARKEL
CORPORATION,
Third-Party Defendant-Respondent.
___________________________________
Submitted March 16, 2020 – Decided July 10, 2020
Motion for reconsideration granted.1
Argued October 22, 2020 – Decided November 10, 2020
1
The order granting reconsideration and recalling the opinion was entered
because appellant's original oral argument request had been overlooked by the
court.
Before Judges Fasciale and Rothstadt.
On appeal from the Superior Court of New Jersey, Law
Division, Middlesex County, Docket No. L-1518-16.
Mark R. Sander argued the cause for appellant
(Thomas, Thomas & Hafer, LLP, attorneys; Mark R.
Sander and Charles W. Skriner, on the briefs).
Eugene Killian, Jr argued the cause for respondent
Superior Integrated Solutions, Inc. (The Killian Firm,
P.C., attorneys; Eugene Killian, Jr. on the brief).
PER CURIAM
In this dispute over an insurer's duty to defend, defendant Mercer
Insurance Company of New Jersey, Inc. (Mercer), appeals from the Law
Division's July 10, 2018 order granting summary judgment to Mercer's insured,
plaintiff Superior Integrated Solutions, Inc. (Superior) and to third-party
defendant Evanston Insurance Company a/k/a Markel Corporation (Evansto n);
a September 14, 2018 order denying in part Mercer's reconsideration motion;
and from the September 21, 2018 entry of a final judgment against Mercer in
the amount of $337,495.73 in favor of Superior. Superior's complaint arose from
Mercer's refusal to defend Superior against claims made by a competitor, Reynolds
& Reynolds Company (Reynolds) in a 2012 lawsuit. In that action, Reynolds alleged
that Superior infringed upon Reynolds's copyrighted computer program in its
attempt to solicit Reynolds's customers and persuade them to use Superior's services.
A-1027-18T4
2
On appeal, Mercer argues that it had no duty to defend Superior under the
"advertising injury" coverage provided in its policy and, even if covered,
Reynolds's claims against Superior were excluded from coverage by other policy
provisions because Superior's acts were intentional and related to computer
programing activities. In addition, Mercer argues that Superior's activities
began before Mercer's policy was in force, and the motion judge miscalculated
the amount of fees and costs incurred by Superior during the underlying action.
We affirm.
I.
A.
Superior coordinates and integrates software applications for car dealers'
use in managing their financial and customer information. Superior purchased
a liability policy from Mercer in 2011, which it renewed for an additional year
beginning in November 2012.
Under section 1 of Part II B of the policy, Mercer was obligated to defend
Superior in any action brought against it for, among other claims, "damages for . . .
advertising injury covered by this insurance." That obligation expressly excluded
"suits seeking damages not covered by this policy or allegations within a suit which
are not covered by this policy."
A-1027-18T4
3
Section 11 of Part II B further explained the coverage for an "advertising
injury." It stated the following:
We pay for the benefit of insureds, up to the limit of
liability shown in the Declarations or Declarations
Supplement, those sums that insureds become legally
liable to pay as damages because of:
1. Advertising Injury; . . . as described and covered by this
policy, arising out of a covered offense.
....
This Supplemental Coverage applies only to the
following:
1. Advertising Injury arising out of an offense committed
in the course of advertising goods, products, or services of
your business/operations covered by this policy.
Under the policy, "[a]dvertising injury" is defined as:
1. Infringement of copyright, slogan, title or trade dress.
2. Misappropriation of advertising ideas or style of doing
business.
3. Oral or written publication of material that: slanders or
libels a person or organization; disparages a person's or
organization's goods, products, or services.
4. Oral or written publication of material that violates a
person's right of privacy.
....
Advertising Injury . . . [does] not include bodily
A-1027-18T4
4
injury or property damage.
The policy also contained a number of exclusions from coverage, including
claims for "[i]njury arising out of oral or written publication of material, done by or
at the direction of any insured with knowledge that such is false or such would
violate the rights of another and would inflict the injury," and for "[i]njury arising
out of oral or written publication of material whose first publication took place prior
to the beginning of this policy or such coverage under this policy."
The policy also excluded "Computer Software Professional Activities." That
exclusion stated the following:
Under Part II B, the Contractual Supplemental Coverage
and the Personal Injury/Advertising Injury Supplemental
Coverages do not apply to damages arising out of the
rendering of, or failure to render, any professional advice,
product or service by you or on your behalf in connection
with the selling, licensing, franchising, creation of,
modification of, integration of, or furnishing of internet
access, website design, or computer software including
electronic data processing programs, downloadable
programs, designs, specifications, manuals and
instructions.
B.
While Mercer's policy was in force, on November 1, 2012, Reynolds filed its
lawsuit against Superior in the United States District Court for the Southern District
A-1027-18T4
5
of Ohio.2 According to its complaint, Reynolds developed and provided
"automobile dealer management systems" (DMS) to automobile retailers. DMS
allowed dealers to organize and use inventory, customer contacts, financial and
insurance information, and to perform other tasks in order to manage an automotive
dealership. Reynolds's primary DMS was a program called ERA through which its
customers were provided with a "hosted data server" located at either "the
dealership, or 'in the cloud,'" and "a licensed terminal emulator software solution . . .
which serve[d] as a secure gateway through which data [could] be transmitted
between the ERA server(s) and the end-user computers (i.e. "PCs") at the
dealership."
Reynolds alleged that shortly after providing a July 2012 software update, its
customers began to complain about problems with the system. Reynolds discovered
that Superior made an unauthorized copy of a Reynolds-authored file that Superior
made available to its customers on its website. Reynolds further alleged that
Superior "directed its customers to make such unauthorized copies in violation of
the Reynolds Customer Agreement" and that Superior engaged in a "scheme to make
and distribute unauthorized copies of" Reynolds's file. According to Reynolds,
2
See Reynolds & Reynolds Co. v. Superior Integrated Sols., Inc., Docket No.
1:12-cv-00848 (United States District Ct. for the Southern District of Ohio,
Western Division).
A-1027-18T4
6
Superior "actively solicited and induced Reynolds'[s] customers to provide
[Superior] with access to ERA and/or to allow [Superior] to integrate with ERA in
violation of the Reynolds Customer Agreements."
Reynolds stated that Superior's services had "little or no value to Reynolds'[s]
customers unless [Superior had] access to the DMS and/or [could] integrate to the
DMS." Reynolds concluded that Superior "actively persuaded Reynolds'[s]
customers to breach their promise to Reynolds, so that [Superior] could peddle their
unauthorized services to these customers for a fee."
Reynolds also alleged that Superior's copyright infringement and inducement
of Reynolds's customers to breach the Reynolds Customer Agreement "substantially
injured" Reynolds, "[a]t a minimum," by causing "serious technical and performance
problems" for Reynolds's customers and Reynolds having had to divert significant
resources to diagnose and solve the technical problems. It further alleged that
Superior "profited from its theft of Reynolds'[s] intellectual property by selling
integration services made possible only by its copyright infringement and
unauthorized and contractually prohibited hostile integration." (Emphasis added).
The complaint also alleged Superior's "motive was profit-driven." Based on those
allegations, Reynolds sought an injunction and damages for: (1) direct copyright
A-1027-18T4
7
infringement; (2) contributory copyright infringement; (3) tortious interference with
contract; and (4) violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030.3
C.
Superior notified Mercer of the lawsuit and demanded coverage and a defense.
Thereafter, in an exchange of communications, Mercer denied coverage and a
defense, citing a number of exclusions in support of its decision. Superior
challenged Mercer's reliance on the cited exclusions, but Mercer did not change its
position.
Superior settled Reynolds's claim, without any payment to Reynolds, but only
after having incurred $591,353.83 in costs by defending the action. However,
Superior was able to recover from Evanston $337,500 of its costs under a separate
"Information Technology Professional Liability and Data Breach and Privacy
Liability Insurance Policy" it purchased from Evanston.
Superior then filed its complaint for breach of contract in this action against
Mercer. It later amended the complaint to include a claim for breach of the duty of
good faith and fair dealing. Mercer filed responsive pleadings, including a third-
3
Reynolds amended its complaint in 2013 to allege that Superior advertised
that it had an allegedly infringing computer program available on its website
that customers could download. However, Superior never gave Mercer a copy
of that amended pleading or renewed its demand for a defense and coverage.
A-1027-18T4
8
party complaint for indemnification and contribution against Evanston, and
Evanston filed its answer denying liability.
On April 27, 2018, Superior and Mercer filed motions for summary judgment.
Evanston later filed a cross-motion for summary judgment as to Mercer's claim.
After considering the parties' oral arguments, the motion judge entered an order on
July 10, 2018, granting Superior's motion against Mercer, denying Mercer's motion
against Superior, ordering Mercer to pay Superior $253,853.83 in damages, granting
Evanston's cross-motion for summary judgment against Mercer, and dismissing with
prejudice Mercer's third-party complaint. The judge set forth his reasons in a nearly
thirty-page written decision.
In his decision, and contrary to Mercer's position, the motion judge found that
Superior's conduct underlying the Reynolds action constituted "advertising" because
Reynolds alleged Superior infringed its copyright by copying, distributing, and
selling Reynolds's program and by instructing Reynolds's customers on how to
install the software, which Superior made available for download on its website. The
motion judge concluded that Reynolds's complaint asserted a claim that Superior
caused Reynolds an "advertising injury," as contemplated by Mercer's policy,
through copyright infringement.
A-1027-18T4
9
Next, the judge found that the "Computer Software Professional Activities
Exclusion" relied upon by Mercer was inapplicable. Although the policy stated this
exclusion applied to Part II B, "Part II B lists a host of different areas of coverage,
many of which would be rendered meaningless if this [exclusion] were applied—
including the provision that provides coverage for advertising injuries." Therefore,
because there was "no way to apply [that e]xclusion to the portion of supplemental
coverage that covers advertising injuries without rendering that coverage
meaningless," the judge found the exclusion inapplicable. Although the judge also
found that Mercer's "Statutory Communication Violation Exclusion" applied to deny
coverage as to Reynolds's claims relating to the Consumer Fraud and Abuse Act, the
judge found that Mercer still had a duty to defend Superior because "the duty to
defend will attach" as long as some claims were covered.
Addressing the claims against Evanston, the judge found that the Evanston
policy and Mercer's policy were to be treated as "co-primary," meaning Mercer
would be responsible for the balance of the defense costs, after Evanston and
Superior's settlement, which amounted to less than the fifty percent Mercer should
have paid. Therefore, Mercer owed Superior $253,853.83. Last, the judge found on
Mercer's motion that Mercer did not breach the implied duty of good faith and fair
dealing.
A-1027-18T4
10
Thereafter, Superior filed a motion for an award of attorney's fees under Rule
4:42-9(a)(6) and for entry of final judgment. Mercer filed a motion for
reconsideration of the July 10, 2018 order. On September 14, 2018, the motion judge
entered an order granting Mercer's motion for reconsideration in part to correct a
mathematical error, thereby reducing Superior's defense costs in the Reynolds action
by $17,931.79, but denying the remainder of the motion, explaining his reasons in
an attached statement in which he found that Mercer's motion was an attempt at "a
second bite of the apple because it disagree[d] with the [c]ourt's decision."
Addressing the amount awarded to Superior, the judge stated that although Mercer
had originally sought a reduction of $31,847.12, it did not challenge Superior's
calculation of the error to be $17,931.79. The judge concluded by stating that Mercer
was required to pay forty-one percent of Superior's defense costs, "far less than it
could have been responsible to pay if the costs had been split equally between
Mercer and Evanston."
On September 21, 2018, the motion judge granted Superior's application for
attorney's fees, awarded $101,573.69 in such fees, and entered a final judgment in
Superior's favor in the total amount of $337,495.73, inclusive of fees. The judge
stated his reasons in another statement attached to the judgment. This appeal
followed.
A-1027-18T4
11
II.
Our review of a ruling on summary judgment is de novo, applying the same
legal standard as the trial court. Lee v. Brown, 232 N.J. 114, 126 (2018). Where a
motion judge determines on summary judgment that an insurer had duty to defend,
"the judge's conclusions and interpretation of the record are not entitled to our
deference." Wear v. Selective Ins., 455 N.J. Super. 440, 453 (App. Div. 2018); see
also R. 4:46-2.
III.
We first address Mercer's contention that summary judgment should not
have been granted to Superior because Reynolds's claims were not covered as
Superior never engaged in "advertising" or they were excluded by the policy's
"intentional acts exclusion," which the motion judge overlooked, the
"personal/advertising injury exclusion," the "Computer Software Professional
Activities Exclusion," and the "prior publication" exclusion.
A.
First, Mercer argues that the Reynolds's complaint never alleged a covered
"advertising injury" because Reynolds never alleged that Superior engaged in
any "advertising." Citing to different sources, both parties agree that the plain
meaning of "advertising" involves not merely the sale of an item or service, but
A-1027-18T4
12
also drawing the public's attention to the service or product for the purpose of
attracting customers. Their disagreement focuses on whether the Reynolds's
complaint alleged advertising or only uncovered tortious acts by Superior.
Primarily relying on the Supreme Court's opinion in Information Spectrum, Inc.
v. Hartford, 182 N.J. 34 (2004), Mercer contends that "selling" is not
"advertising" and the Reynolds's complaint never alleged any advertising by
Superior sufficient to trigger its duty to defend. We disagree.
The duty to defend derives from the language of the policy. Hartford Accident
& Indem. Co. v. Aetna Life & Cas. Ins., 98 N.J. 18, 22 (1984). Whether that duty
exists is dependent upon "[t]he interpretation of [the] insurance policy upon
established facts[, which] is a question of law for the court to determine." Wear, 455
N.J. Super. at 453. "In considering the meaning of an insurance policy, we interpret
the language 'according to its plain and ordinary meaning.'" Flomerfelt v. Cardiello,
202 N.J. 432, 441 (2010) (quoting Voorhees v. Preferred Mut. Ins., 128 N.J. 165,
175 (1992)). "If the terms are not clear, but instead are ambiguous, they are
construed against the insurer and in favor of the insured, in order to give effect to
the insured's reasonable expectations." Ibid.
Disputes about an insurer's duty to defend are "generally determined by a
side-by-side comparison of the policy and the complaint, and [the duty] is
A-1027-18T4
13
triggered when the comparison demonstrates that if the complaint's allegatio ns
were sustained, an insurer would be required to pay the judgment." Wear, 455
N.J. Super. at 453 (citing Sears Roebuck & Co. v. Nat'l Union Fire Ins. Co. of
Pittsburgh, 340 N.J. Super. 223, 241-42 (App. Div. 2001)). "In making that
comparison, it is the nature of the claim asserted, rather than the specific details
of the incident or the litigation's possible outcome, that governs the insurer's
obligation." Ibid. (quoting Flomerfelt, 202 N.J. at 444).
"The duty to defend is not abrogated by the fact that the claim may have
no merit and cannot be maintained against the insured, either in law or in fact,
because the cause of action is groundless, false, or fraudulent." Sears Roebuck
& Co., 340 N.J. Super. at 241-42. "If the complaint is ambiguous, doubts should
be resolved in favor of the insured and thus in favor of coverage." Voorhees,
128 N.J. at 173-74 (citing Cent. Nat'l Ins. v. Utica Nat'l Ins., 232 N.J. Super.
467, 470 (App. Div. 1989)). The analysis of the allegations is not limited to the
complaint itself, but rather "facts outside the complaint may trigger the duty to
defend." SL Indus., Inc. v. Am. Motorists Ins., 128 N.J. 188, 198 (1992). If
after conducting its analysis, an insurer decides that it will not provide a defense for
a claim, its decision is subject to "an obligation to reimburse for defense costs to the
extent that the defense is later determined to have been attributable to the covered
A-1027-18T4
14
claims and, if coverage is not determinable in the underlying action, it is later
determined that there was in fact coverage." Wear, 455 N.J. Super. at 455 (quoting
Muralo Co. v. Emp'rs Ins. of Wausau, 334 N.J. Super. 282, 289-90 (App. Div.
2000)).
In Information Spectrum, the insured was accused of direct copyright
infringement (the sale of infringing software) and the copyright holder never
alleged that advertising engendered that injury. Info. Spectrum, 182 N.J. at 36-
38. In affirming our earlier opinion, Information Spectrum, Inc. v. Hartford,
364 N.J. Super. 54 (App. Div. 2003), the Court held "[f]or the 'advertising injury'
provision[s] of [a] policy to apply, the harm alleged must be 'caused by' the
advertising act itself and not by the underlying purloinment." Info. Spectrum,
182 N.J. at 38.
Quoting with approval from our opinion, the Court stated that in order to
resolv[e] whether a duty to defend attaches in this
context requires not only that the injury fall within one
of the four categories [defined in the policy] (which
only the copyright infringement does) but also a
determination of whether the claimant asserts that an
injury was caused by the insured's advertising of its
good[s] and services.
[Id. at 37 (quoting Info. Spectrum, 364 N.J. Super. at 66).]
A-1027-18T4
15
"[T]he advertising activities must cause the injury—not merely expose it." Ibid.
(quoting Info. Spectrum, 364 N.J. Super. at 66). Under Information Spectrum,
the test is whether the relationship between the advertising activity and the
copyright holder's injury is causal or incidental. Id. at 38. If it is causal, there
is coverage; if the advertising activity is only incidental, then there is no
coverage. Ibid.
In Information Spectrum, an insured under a policy with similar
provisions was sued for selling a counterfeit "computerized police reporting
system" and demonstrating that system at a police convention.4 Info. Spectrum,
364 N.J. Super. at 59-61. That caused the filing of a lawsuit against the insured
for "infring[ing a] copyright, violat[ing] the Lanham Act (15 U.S.C. § 1125(a)),
misappropriat[ing] trade secrets, . . . breach[ing] the marketing
agreements[,] . . . quantum meruit, fraud, tortious interference with contractual
and prospective economic relationships, and intentional spoliation of evidence."
4
Although "[w]e assume[d] without deciding that such a demonstration would
constitute an act of advertising within the meaning of this policy[, s]ee Elan
Pharm. Research Corp. v. Emp'rs Ins. of Wausau, 144 F.3d 1372, 1377 (11th
Cir. 1998) (defining advertising as '[a]ny oral, written, or graphic statement
made by the seller in any manner in connection with the solicitation of
business.')," we concluded the demonstration occurred outside the policy period
and therefore was not a covered advertising injury. Info. Spectrum, 364 N.J.
Super. at 66.
A-1027-18T4
16
Id. at 61. The pleading "alleged a claim of 'reverse passing off,'" and stated that
the insured "marketed, and continues to market, its computer assisted dispatch
and reporting system by misrepresenting it as a product of [the insured's ] sole
design and development." Id. at 65 (alteration in original). The copyright holder
"never alleged that the insured advertised the offending product." Info.
Spectrum, 182 N.J. at 38.
"We conclude[d] that [while] only the copyright infringement claim f[ell]
within the policy's enumerated offenses[,] . . . because the [pleading]
contain[ed] no assertion that any of the pleaded injuries, including the copyright
infringement claim, were caused by any advertising by the insured, no obligation
to defend was triggered." Info. Spectrum, 364 N.J. Super. at 63. As we stated,
and the Supreme Court affirmed, "falsely advertising that a product created by
another was designed and manufactured by the advertiser," was not an
advertising injury under the policy. Id. at 65. Further, we noted that in order
for advertising injury coverage to apply, the underlying action must allege "a
discre[te] piece of advertising." Id. at 66 (alteration in original).
Contrary to Mercer's argument here, what occurred in Information
Spectrum is different than this case. Reynolds alleged that Superior profited from
its theft of Reynold's intellectual property and was able to sell its integration services
A-1027-18T4
17
"only by its copyright infringement and unauthorized and contractually prohibited
hostile integration." It did not allege that Superior was representing Reynolds's
product as its own. Rather, through its infringement, Reynolds alleged that Superior
was able to inform potential customers that they would be able to continue to
integrate with Reynolds's system while using Superior's services.
Comparing the plain language of the policy to Reynolds's allegation that
Superior "profited from its theft of Reynolds'[s copyrighted] intellectual property by
selling integration services made possible only by its copy infringement," we
conclude that Reynolds's complaint asserted a "discrete piece of advertising" giving
rise to a covered claim of an advertising injury which triggered Mercer's duty to
defend. Here, not only was Superior charged with "purloining" Reynolds's protected
intellectual property, but also with soliciting customers services that it would not
have been able to promote without including in its information that they could
interface with Reynolds's program while using Superior's services. Because
Reynolds specifically claimed that Superior infringed by incorporating Reynolds's
protected intellectual property in making its product known to Reynolds's customers
and others, Superior demonstrated the requisite causal link between the advertising
activity and the offense (copyright infringement). That "advertising," and the
infringement employed in that advertising gave rise to colorable claim of an
A-1027-18T4
18
"advertising injury" under Mercer's policy. See Elan Pharm. Research Corp., 144
F.3d at 1377 (stating that "[a]ny oral, written, or graphic statement made by the seller
in any manner in connection with the solicitation of business" constitutes advertising
(quoting Black's Law Dictionary 54 (6th ed. 1990))); see also Flomerfelt, 202 N.J.
at 444 (stating that "if a complaint includes multiple or alternative causes of action,
the duty to defend will attach as long as any of them would be a covered claim and
it continues until all of the covered claims have been resolved").
Moreover, although an insured's advertising activities must be a cause of the
claimant's injury, it does not necessarily mean such advertising activities must be the
only cause of the injury. Info. Spectrum, 182 N.J. at 37. Information Spectrum does
not suggest that the infringement must be contained within the "four corners" of the
advertisement.
Also, the language of the insurance policy does not demand that copyright
infringement occur in the advertising itself. To the contrary, the language of the
policy is broad, defining "advertising injury," in part, as: "[i]nfringement of
copyright, slogan, title or trade dress."
A-1027-18T4
19
B.
Mercer next argues that even if Reynolds's complaint sufficiently alleged that
Superior advertised, the complaint never alleged that the copyright infringement was
caused by plaintiff's advertising. We find no merit to this assertion.
"[I]n ascertaining whether a duty to defend has been triggered by a claim against
the insured, the claim must be examined for allegations of injuries caused by the
insured's advertising." Info. Spectrum, 364 N.J. Super. at 66. "[C]overage under
the advertising injury provision requires 'a causal connection between the
advertising and the injury . . . .'" Id. at 65-66 (quoting Tradesoft Techs., Inc. v.
Franklin Mut. Ins., 329 N.J. Super. 137, 152 (App. Div. 2000)).
Here, Reynolds's complaint alleged that but for Superior's infringement it would
not have had any ability to successfully solicit Reynolds's customers, who already
had Reynolds's programs in place. Those allegations satisfied the requirement that
the injury be causally related. Whether those allegations are later proven to be untrue
is irrelevant to our determination. Because the duty to defend is broader than the
duty to indemnify, see Hofing v. CNA Ins., 247 N.J. Super. 82, 88 (App. Div. 1991),
we will not relieve an insurer of the duty to defend where a "'potentially coverable'
claim[] require[s] a defense," Abouzaid v. Mansard Gardens Assocs., LLC, 207 N.J.
67, 80 (2011) (quoting Stafford v. T.H.E. Ins., 309 N.J. Super. 97, 103 (App. Div.
A-1027-18T4
20
1998)), regardless of whether "the cause of action stated cannot be maintained
against the insured either in law or in fact—in other words, because the cause is
groundless, false or fraudulent." Id. at 81 (quoting Danek v. Hommer, 28 N.J. Super.
68, 77 (App. Div. 1953), aff'd, 15 N.J. 573 (1954)).
C.
Our conclusion that the claims were covered as "advertising injuries,"
requires us to next consider whether the claims were otherwise excluded by
other provisions of the policy. We conclude they were not excluded.
"[I]f an excluded claim is made, the insurer has no duty to undertake the
expense and effort to defeat it, however frivolous it may appear to be." Wear,
455 N.J. Super. at 456 (quoting Grand Cove II Condo. Ass'n v. Ginsberg, 291
N.J. Super. 58, 72 (App. Div. 1996)). However, "exclusions must be narrowly
construed; the burden is on the insurer to bring the case within the exclusion ."
Flomerfelt, 202 N.J. at 442 (quoting Am. Motorists Ins. v. L-C-A Sales Co., 155
N.J. 29, 41 (1998)). "[E]xclusions are ordinarily strictly construed against the
insurer, and if there is more than one possible interpretation of the language,
courts apply the meaning that supports coverage rather than the one that limits
it." Ibid. (citations omitted).
A-1027-18T4
21
Courts will find "a genuine ambiguity to arise where the phrasing of the
policy is so confusing that the average policyholder cannot make out the
boundaries of coverage." Wear, 455 N.J. Super. at 454 (quoting Weedo v.
Stone-E-Brick, Inc., 81 N.J. 233, 247 (1979)). But, "[f]ar-fetched
interpretations of a policy exclusion are insufficient to create an ambiguity
requiring coverage." Ibid. (quoting Stafford, 309 N.J. Super. at 105).
Moreover, exclusions "are presumptively valid and enforceable 'if they
are "specific, plain, clear, prominent, and not contrary to public policy."'" Ibid.
at 454 (quoting Flomerfelt, 202 N.J. at 441). "[I]f the words used in an
exclusionary clause are clear and unambiguous, 'a court should not engage in a
strained construction to support the imposition of liability.'" Mem'l Props., LLC v.
Zurich Am. Ins., 210 N.J. 512, 528 (2012) (quoting Flomerfelt, 202 N.J. at 442).
"Courts must be careful, however, 'not to disregard the "clear import and intent"
of a policy's exclusion . . . .'" Wear, 455 N.J. Super. at 454 (alteration in
original) (quoting Flomerfelt, 202 N.J. at 442).
(i).
With those guiding principles in mind, we turn to Mercer's argument that its
"intentional acts" exclusion relieved it of its duty to defend. The exclusion appeared
in section 11 of Part II B and stated the following:
A-1027-18T4
22
Advertising Injury Exclusions.
We do not insure any of the following:
1. Injury arising out of oral or written publication of
material, done by or at the direction of any insured with
knowledge that such is false or such would violate the
rights of another and would inflict the injury.
[Emphasis added.]
Mercer contends that this provision excluded coverage for claims arising out
of Superior's "intentional acts" and that since "it is clear that all of Reynolds's claims
in its [c]omplaint alleged intentional conduct" by Superior, the claim was excluded
and therefore Mercer had no duty to defend. We disagree.
The exclusion states that intentional injuries, rather than intentional acts,
caused by the insured are excluded from coverage where publication is made with
knowledge it is false or violative of another's rights. The burden was on Mercer to
establish that Reynolds's complaint alleged an intentionally caused injury. See
Hammer v. Thomas, 415 N.J. Super. 237, 249 (App. Div. 2010) (stating that the
insurer has the burden to bring the matter within the policy exclusion). Mercer failed
to meet its burden because it cannot cite to any allegation made by Reynolds that
Superior intended to injure Reynolds with its conduct.
A claimant's mere allegation of intentional harm does not alone justify an
insurer's refusal to provide a defense. In order to bring the insured's conduct within
A-1027-18T4
23
the exclusion there must be evidence that the insured subjectively intended to injure
the claimant. See SL Indus., 128 N.J. at 212. "Absent exceptional circumstances
that objectively establish the insured's intent to injure, we will look to the insured's
subjective intent to determine intent to injure." Voorhees, 128 N.J. at 185.
Here, Reynolds never alleged that it suffered an intentional injury. Reynolds
never alleged Superior intended to harm Reynolds. Rather, the complaint stated
Superior's copyright infringement was profit-driven. Reynolds alleged it was injured
when Superior, while promoting its services in pursuit of realizing profits, used
Reynolds's protected intellectual property to assure customers they could still use
Reynolds's system. The exclusion did not apply to bar coverage or relieve Mercer
of its duty to defend.
We are not persuaded by Mercer's contention that the allegation of Superior's
intentional copyright infringement was sufficient to establish an intentional injury.
The coverage provided for an "advertising injury," in the form of copyright
infringement, did not limit the coverage to only negligent acts. Even if it did, by its
nature, copyright infringement is a strict liability tort, and intent to injure is not
relevant. See Major League Baseball Promotion Corp. v. Colour-Tex, Inc., 729 F.
Supp. 1035, 1039 (D.N.J. 1990); see also Shapiro, Bernstein & Co. v. H. L. Green
Co., 316 F.2d 304, 308 (2d Cir. 1963). To allege a claim for copyright infringement,
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a plaintiff must state: "(1) ownership of a valid copyright; and (2) unauthorized
copying of original elements of plaintiff's work." Kay Berry, Inc. v. Taylor Gifts,
Inc., 421 F.3d 199, 203 (3d Cir. 2005). Intent is not an element of the claim.
(ii).
Next, we address Mercer's argument that coverage was excluded under the
Computer Software Professional Activities Exclusion. As the motion judge
correctly found,5 that exclusion does not exclude coverage for Superior's alleged
conduct. Construing the exclusion narrowly, this exclusion applies specifically to
Superior's rendering of service or advice to its customers or other covered persons.
It does not apply to a claim made by a third party for injuries caused by Superior
where Superior was not selling computer software programs to that party.
Moreover, as the motion judge also found, adopting Mercer's interpretation would
render numerous coverages provided under in Part II B meaningless, including the
one provided for an advertising injury. According to the judge, there was "no way
to apply [that e]xclusion to the portion of supplemental coverage that covers
advertising injuries without rendering that coverage meaningless." "A contract
5
Mercer misconstrues the motion judge's conclusion, stating he concluded that
the policy would be left covering nothing if the computer software pr ofessional
activities exclusion applied. However, the motion judge never stated the policy
would cover nothing. Instead, he concluded that the coverages listed in Part II
B would be meaningless if this exclusion applied.
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'should not be interpreted to render one of its terms meaningless.'" Porreca v. City
of Millville, 419 N.J. Super. 212, 233 (App. Div. 2011) (quoting Cumberland Cty.
Improvement Auth. v. GSP Recycling Co., 358 N.J. Super. 484, 497 (App. Div.
2003)).
(iii).
Next, Mercer argues it was justified in denying coverage based on its policy's
"prior publication" exclusion.6 The "prior publication" exclusion states that Mercer
does not insure "[i]njury arising out of oral or written publication of material whose
first publication took place prior to the beginning of [the] policy or such coverage
under [the] policy." Mercer contends that an advertisement published by Superior
on its website in 2009 triggered the "prior publication" exclusion, thus warranting
relief from its duty to defend the 2012 complaint. We find no merit to this contention
as Reynolds never alluded to the 2009 publication and, in any event, it has no relation
to the copyright infringement alleged in Reynolds's 2012 complaint. In order for
Mercer's prior publication exclusion to apply, the injury alleged in the complaint had
to have arisen out of those prior publications. There is no evidence that it did.
6
Although defendant raised this exclusion below, the motion judge did not
address it in his statement of reasons.
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26
IV.
Mercer also contends that the motion judge did not make adequate findings of
fact and conclusions of law when he approved the total amount of Superior's defense
costs in the Reynolds action, and that he did not properly allocate Mercer's
responsibility between covered and non-covered claims. We disagree.
"The general rule is that when the insurer has wrongfully
refused to defend an action and is then required to
reimburse the insured for its defense costs, its duty to
reimburse is limited to allegations covered under the
policy, provided that the defense costs can be apportioned
between covered and non-covered claims."
[SL Indus., 128 N.J. at 214-15.]
The burden of establishing the claimed fees' reasonableness is on the insured,
but "the burden of [proving] . . . whether those fees can be allocated and, more
importantly, how they should be allocated, . . . fall[s] upon the insurer who allowed
the difficulties of allocation to accrue through its refusal to defend." Hebela v.
Healthcare Ins., 370 N.J. Super. 260, 280 (App. Div. 2004).
Here, Mercer never challenged the reasonableness of Superior's revised
defense cost.7 Rather, Mercer challenged Superior's initial calculations, which were
7
In its merits brief, Mercer only argued that Superior's defense costs were
miscalculated, and the motion judge failed to allocate them between Superior's
defense of covered and allegedly noncovered claims. At oral argument, Mercer
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27
later corrected in response to Mercer's reconsideration motion. Mercer never raised
any issue as to allocation and offered no proof suggesting a different allocation than
determined by the judge. Under these circumstances, Mercer failed to meet its
burden. We have no cause to disturb the result.
V.
Finally, because we agree with the motion judge's granting Superior summary
judgment, we need not address Mercer's arguments about the denial of its motion for
reconsideration of that judgment.
Affirmed.
argued for the first time that it did challenge the reasonableness of those cost
through a March 2, 2018 expert's report that was attached to its brief in support
of reconsideration. Not only will we not consider arguments raised for the first
time at oral argument, but a review of the expert's report reveals that it addressed
the substantive issue of "Mercer's evaluation of the Reynold's suit" and its
conclusion that coverage would not be provided, and tangentially referred to the
reasonableness of the costs and the need for their allocation.
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SUPERIOR INTEGRATED SOLUTIONS, INC. VS. MERCER INSURANCE COMPANY OF NEW JERSEY, INC. (L-1518-16, MIDDLESEX COUNTY AND STATEWIDE)
Combined Opinion