Insurer Must Defend McGraw-Hill In Infringement Case

A New York State appeals court overturned a lower court’s ruling and held that an insurer must defend McGraw-Hill Education Inc. in underlying copyright litigation in the case of McGraw-Hill Educ., Inc. v. Ill. Nat’l Ins. Co.

McGraw-Hill is a learning science company and educational publisher that provides customized educational content software and services, and also publishes reference and trade books for several professions. Over the last few years, McGraw-Hill has faced several actions alleging copyright infringement with AIG-affiliated insurers refusing to defend and indemnify.

McGraw-Hill had entered into licensing agreements with third-party photographers and stock photography agencies, which limited the parameters of the usage of the images. The lawsuits alleged that McGraw-Hill’s usage of the images in textbooks and other publications exceeded the scope of the agreements between the two parties.

McGraw-Hill sought a defense from its insurers.

The insurers denied coverage based on policy exclusions for claims arising out of a contract, and claims arising out of the intentional violation of law. They also argued that the claimed losses were not fortuitous because McGraw-Hill’s actions were willful, and therefore, were not covered. The insurers further argued that McGraw-Hill’s management was aware of the legal risks of using the photographs for years before the lawsuits were filed.

The trial court denied both parties’ motions for summary judgment, ruling that there were questions of fact about the intentional wrongdoing and fortuity issues. The Appellate Division First Department reversed and granted summary judgment for McGraw-Hill, holding that the insurers had a duty to defend in the underlying suit. The court found that the exclusions for claims arising out a contract did not apply in this case because the claims could have been brought even if the contracts had not been violated.

The other exclusion cited by the insurers — the one barring coverage for claims arising out of the intentional violation of law or gaining profit or advantage that the insurer is not entitled to — barred coverage, in part, but only in cases where it is “judicially determined” that the violation is intentional. Since there was no such judicial determination, the exclusion did not apply.

The court finally held that the fortuity doctrine did not bar coverage because the policy was intended to provide coverage for claims arising out of “infringement of common law or statutory copyright,” and invoking the fortuity doctrine would “render that portion of the policy illusory.”

The case is McGraw-Hill Educ., Inc. v. Ill. Nat’l Ins. Co., 2019 NY Slip Op 08960 (App. Div. 1st Dept.).