Products Exclusion Blocks Coverage of Consumer Claims Against Mobile Content Provider

March 31, 2011 | Insurance Coverage

W3i Mobile, LLC, which provides mobile content such as ringtones, quizzes, horoscopes, and weather alerts to cellular telephone users, was sued by customers who claimed that W3i billed for products customers never ordered or received. W3i sought coverage under a Business and Management Indemnity policy and sued its insurer. The district court granted summary judgment in favor of the insurer, finding that the products exclusion precluded recovery for W3i because the underlying claims involved W3i’s product. W3i appealed.

In its decision on appeal, the U.S. Court of Appeals for the Eighth Circuit explained that the products exclusion operated against claims “arising out of . . . directly or indirectly resulting from . . . or in any way involving . . . products . . . produced . . . sold, marketed, distributed . . . or developed by [W3i].” (emphasis added). The Eighth Circuit pointed out that the two underlying claims alleged that customers were billed for mobile content, which “indisputably” was W3i’s “product,” regardless of whether the bills were erroneous or unauthorized. The Eighth Circuit found that the claims involved W3i’s mobile content, and therefore were subject to the products exclusion.

The circuit court rejected W3i’s characterization of the underlying claims as billing disputes unaffected by the policy’s products exclusion. In the Eighth Circuit’s view, accepting that characterization would require it “to ignore both the exclusion’s plain and unambiguous language and the underlying claims’ factual allegations.”

Moreover, the circuit court rejected W3i’s contention that the word “involving” was ambiguous, noting that the “in any way” language incorporated “all reasonable definitions” of the word “involving.” The Eighth Circuit concluded by noting that the products exclusion “used clear and unambiguous language and was plainly labeled under the exclusion section.” It then affirmed the district court’s decision in favor of the insurer.

The Eighth Circuit’s decision is interesting in that both the provision and the factual circumstances were unusual.

The case is W3i Mobile, LLC v. Westchester Fire Ins. Co., No. 09-3701 (8th Cir. Feb. 15, 2011).

Case & Point

Recent noteworthy decisions

No Duty to Defend Where Underlying Claim Implicated Assault and Battery Exclusion

A woman claimed she had been assaulted by Eric Fanning, who had been hired to provide security at a concert. A jury found that Fanning had committed a sexual battery and decided that the concert promoter was liable for negligent hiring, awarding total damages of $750,000. The promoter sought to recover its defense costs from its commercial general liability insurer, arguing that it had reason to know that Fanning had not committed an assault.  The court explained that if Fanning had committed an assault, then the assault and battery exclusion applied to defeat coverage, and if he had not done so, then the promoter was not legally obligated to pay damages to the woman and coverage was not implicated. Thus, the court concluded, there was “no potential outcome of the trial” that would have required the insurer to indemnify the promoter, and the insurer had no duty to defend. [Festivals and Concert Events, Inc. v. Scottsdale Ins. Co., No. 09-3647 (8th Cir. Feb. 14, 2011).]

 No Coverage Where Underlying Complaint Only Alleged Intentional Acts

After a homeowner pleaded guilty to assaulting a neighbor, the neighbor sued the homeowner. The homeowner’s insurer argued that the underlying events did not constitute an “accident.” The homeowner stated in an affidavit that he had acted in self-defense, and that “at no time did I have any intention of harming [the neighbor].” The court explained that the homeowner, facing jail time for his crime, had adequate incentive to contest the criminal charges against him. Accordingly, it ruled, the neighbor was collaterally estopped from claiming that the assault was an “accident” and a covered “occurrence” under the policy. [Westfield Ins. Co. v. Granese, No. 10-795 (E.D. Pa. Feb. 4, 2011).] 

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