The insurers representing an insurance broker and its employee who were hit with a $30 million copyright infringement judgment over protected documents copied from a rival broker do not have to pick up the legal costs, the state Superior Court has ruled, because the underlying conduct did not amount to an “advertising injury.”

The unanimous three-judge panel’s decision clears a group of 17 insurers from defending and indemnifying USI MidAtlantic Inc. and Thomas P. Haughey, after Haughey was found to have copied language from a brokerage where he used to work.

The decision affirms that of a Montgomery County Court of Common Pleas judge, who declined to find the definition of “advertising” extended beyond widespread promotional endeavors and into the realm of individualized marketing and business solicitations.

Led by Senior Judge Robert E. Colville, the panel accepted the lower court’s definition of advertising and further found USI and Haughey were not in the course of advertising when they infringed upon the copyright of William A. Graham Co., Haughey’s former employer.

According to one insurer’s attorney, the judgment was one of the biggest copyright infringement awards out of the U.S. District Court for the Eastern District of Pennsylvania.

In his analysis for the lower court, Montgomery County Court of Common Pleas Judge Stanley Ott said the state Supreme Court had utilized Webster’s Ninth New Collegiate Dictionary for certain terms previously — “escape,” “discharge,” “dispersal,” “migration,” “release” and “seepage” are some examples — in ruling that insurance policies are “to be construed in their natural, plain and ordinary sense.”

According to Ott, Webster’s defines “advertising” as “the action of calling something to the attention of the public, especially by paid announcements.”

Similarly, a “clear majority” of cases inside and outside of Pennsylvania have interpreted the definition of “advertising” in insurance policies’ “advertising injury” provisions as “widespread distribution of promotional material,” Ott said.

Colville, in a 15-page unpublished memorandum opinion in OneBeacon Insurance v. William A. Graham, said Ott’s analysis comported with the principles that insurance policies must be construed as written and not modified.

“Indeed, Black’s Law Dictionary’s primary definition of ‘advertising’ states, ‘The action of drawing the public’s attention to something to promote its sale,’” Colville said. “This definition, like the definition adopted by the trial court, captures the natural, plain and ordinary meaning of the word ‘advertising,’ as that term is used in the pertinent policies.”

The panel’s analysis then came down to two paragraphs in Graham’s copyright infringement complaint against USI and Haughey to determine whether the definition could apply to USI and Haughey’s actions.

It could not.

Both paragraphs in the complaint essentially alleged Haughey “repeatedly copied and used portions” of USI’s “Standard Proposal” in documents he presented to clients without Graham’s consent. They also, consequently, disclosed knowledge and information about Graham’s business practices.

“Even when we consider these allegations to be true and construe them liberally in favor of [USI and Haughey], we cannot conclude that they allege that Graham suffered an ‘advertising injury’ caused by [USI and Haughey's] infringement upon Graham’s copyrighted material, or by [their] otherwise misappropriating Graham’s property, while [USI and Haughey] were in the course of drawing the public’s attention to their goods, products or services,” Colville said. “Indeed, nothing asserted in these paragraphs suggests that Graham was accusing [USI and Haughey] of publicly presenting anything in an attempt to draw attention to their goods, products or services.”

The insurers in OneBeacon — OneBeacon, West American Insurance Co., Ohio Casualty Insurance Co., American Insurance Co., National Surety Corp., Royal Surplus Lines Insurance Co., St. Paul Fire & Marine Insurance Co., Travelers Indemnity Co. of Illinois, AIU Insurance Co., National Union Fire Insurance Co. of Pittsburgh, Vigilant Insurance Co., Federal Insurance Co., Hartford Casualty Insurance Co. and Twin City Fire Insurance Co. — had argued the allegations of copyright infringement were “completely devoid” of allegations such occurred in the course of advertising.

USI and Haughey, however, contended that under the broad reading of the insurers’ policies, they are entitled to the plain meaning of advertising, which includes marketing presented to an individual as a one-on-one sales pitch or group in an attempt to win their business, such as the insurance proposals at issue in the underlying copyright infringement suit. They argued Ott’s definition was too narrow.

Either way, they further contended, the Graham complaint included allegations triggering the insurers’ duty to defend and indemnify.

In their brief, according to Colville, the broker and Haughey argued: “Paragraphs 28 and 31 of the Graham complaint not only allege that USI used copyrighted sales materials in one-on-one meetings with clients and prospective clients, but also that, in addition, it ‘otherwise’ disclosed Graham’s protected materials and ideas in violation of the Copyright Act of 1976 and [Haughey's] employment agreement [with Graham]. Those allegations potentially referred to ‘advertising’ activities by USI no matter how that term is defined.”

In the underlying litigation, William A. Graham Co., an insurance broker, filed a suit in the Eastern District alleging that USI had infringed on its copyrighted material after Haughey had brought copyrighted documents from Graham to USI, the Law Weekly has previously reported.

Graham alleged that Haughey and USI used standardized language from those documents in their own client-specific insurance proposals from 1991 to 2005, Ott said.

In June 2006, a federal jury found that USI and Haughey had committed copyright infringement and awarded to Graham more than $16.5 million from USI and more than $2.2 million from Haughey, according to Ott.

With prejudgment and post-judgment interest, the combined award rose to about $30 million.

William Shelley, the Cozen O’Connor attorney who represented OneBeacon, said the underlying case was one of the largest copyright infringement judgments out of the Eastern District and that the Superior Court followed a solid insurance law analysis by the lower state court.

“We affirmed that, under Pennsylvania law, the advertising injury requires the broad dissemination of materials to the public,” Shelley said. “That’s really the guts of what the court was ruling.”

Thomas S. Schaufelberger of Saul Ewing in Washington, D.C., represented Hartford Casualty Insurance. According to Schaufelberger, who argued before the panel, the court’s “tight and straightforward” analysis follows a trend of courts rejecting bids to expand the definition of advertising beyond its plain meaning.

“We’ve seen a lot of attempts around the country, but they’ve been by and large unsuccessful, to expand the meaning of advertisement to any communication,” Schaufelberger said.

He added: “If the court had found the other way, it would have created a great deal of confusion as to what the extent of coverage by the advertising injury provision would be.”

Darin J. McMullen of Anderson, Kill & Olick’s Philadelphia office represented USI MidAtlantic and Haughey and did not return calls requesting comment.

Ben Present can be contacted at 215-557-2315 or Follow him on Twitter @BPresentTLI.

(Copies of the 15-page opinion in OneBeacon Insurance v. William A. Graham, PICS No. 12-1714, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •