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The Fifth Circuit Court of Appeals ruled last week that two insurance companies must both defend and indemnify a Louisiana construction company in a copyright infringement lawsuit over architectural plans.
Following Louisiana jurisprudence, which requires ambiguities in insurance policies to be interpreted against the insurer, the appellate court applied a "but for" test to determine the extent of the companies' obligations.
In 1996, Looney Ricks Kiss Architects (LRK), a Memphis-based architecture firm, created a design for the Island Park Apartments, which was constructed by companies associated with Steve Bryan. That year, LRK and Island Park, LLC, represented by Bryan, entered a contract, which stipulated:
"The Architectural Works, Drawings, Specifications, Technical Drawings and other documents prepared by the Architect for this Project are instruments of the Architect's service for use solely with respect to this Project and, unless otherwise provided, the Architect shall be deemed the author of these documents and shall retain all common law, statutory, and other reserved rights, including the copyright."
LRK registered the Island Park Apartments with the United States Copyright Office as an "Architectural Work and Technical Drawings."
In 2001, Cypress Lake Development, a company associated with Bryan, initiated the construction process for the Cypress Lake apartments in Baton Rouge. LRK alleges that the Cypress Lake apartments infringe on its copyrighted work, and that the defendants used depictions of LRK's copyrighted works in promotional and advertising materials for the apartments.
(The development is off I-10 behind the Siegen Lane Target, for any Baton Rouge readers who want to gawk at alleged copyright infringement).
Lafayette Insurance Company (Lafayette) and State Farm Fire and Casualty Company (State Farm), which insured the Cypress Lake Development, sought declaratory judgments that they had no obligation to provide coverage or duty to defend Bryan in LRK's suit due to exclusions in their respective policies. The district court concluded that both insurance companies had to defend Bryan in the lawsuit, but neither insurer had to provide coverage due to the "breach of contract" exclusions in the policies. The Fifth Circuit disagreed.
During the relevant time period, both Lafayette and State Farm insured Cypress Lake with policies that covered advertising injuries, including copyright infringement coverage. Applying a "but for" test to determine whether a breach of contract exclusion precluded coverage for LRK's copyright infringement lawsuit, the Fifth Circuit Court of Appeals reasoned that LRK's claim for relief under the federal copyright laws would exist even in the absence of its 1996 Agreement with Bryan. Thus the breach of contract provisions of the insurance policies did not preclude coverage.
It's not easy to hide behind breach of contract exclusions. If you're representing an insurance company in a similar copyright infringement lawsuit, get ready to litigate and indemnify.