A recent federal court decision demonstrates the potential complexity of technology professional liability (E&O) insurance coverage and claims. In this case, the court determined that no coverage was provided under the insured's GL policy nor under the insured's technology E&O policy.
The case, titled Eyeblaster, Inc. v. Federal Ins. Co. (Chubb) (see here), involved an internet advertising firm (Eyeblaster) that allegedly intentionally downloaded spyware to a third party's computer (Sefton's) causing damages. Excellent summaries of this case can be found here (see p 6), here and here.
The court found no coverage under the GL policy because the damages were to software, which the court concluded was not tangible property and therefore not covered.
As the GL policy specifically excludes damage to software, and there was no damage to tangible property, the allegations in the Sefton Complaint are not covered under the GL policy (see here, p 6).
The court found no coverage under the technology E&O policy because the act of downloading spyware was intentional.
The court noted that Eyeblaster specifically intended that the software would install on Sefton’s computer and held the act not to be covered regardless of whether Eyeblaster intended the resulting injury (see here)
Professional liability (E&O or errors & omissions) insurance policies do not typically cover intentional acts.
The court addressed the question of whether the distinction between the intentional download and the unitended damages impacted coverage under the E&O policy. The court concluded that there still would be no coverage because the act itself was intentional.
However, the court noted that:
...had Eyeblaster intended to give its customers one type of software but mistakenly given them a different version that caused a problem, then that would be covered under this particular policy (see here).
This would be a negligenc (an error), and would be covered.
Note that professional liability policies vary, and other policies may provide more or less coverage for this particular fact pattern that the policy contemplated in this case.
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