Insurer obligated to defend unauthorized access to television programming because “data” in exclusion ambiguous.

A Maryland District Court, applying Maryland law, held that Axis Insurance Company (“Axis”) had a duty to defend Ellicott City Cable, LLC (“ECC”) for an underlying action against ECC and Dr. Bruce Taylor (“Dr. Taylor”) which alleged unauthorized access to television programing as well as various other related claims.   In the coverage suit before the District Court, ECC and Dr. Taylor argued that Axis owed ECC a duty to defend based on the following two grounds: (1) the exclusions of the policies do not apply to the allegations of the underlying action because DirectTV’s television programming is not “data” and (2) even if the programming is “data,” DirectTV sought claims separate and independent from any allegations of unauthorized use.

In 2005, Dr. Taylor formed ECC to provide television, internet, and telephone services to certain Maryland residents.  ECC contracted with DirecTV, LLC (“DirectTV”) to obtain satellite television programming through DirecTV agents.  Under the contracts, ECC distributed the DirecTV programming through equipment and credentials provided by the agents and, in turn, made monthly payments to DirecTV for access to its programming.  This arrangement continued until 2014, when ECC terminated the relationship.  In 2013, DirecTV filed the underlying action alleging that ECC and Dr. Taylor “fraudulently obtain[ed] , and assist[ed] others in obtaining DirecTV’s satellite television programing and distriubut[ed] that programming over unauthorized cable television systems.”

Axis issued several successive multimedia liability policies to ECC and Dr. Taylor for the relevant time period.  ECC notified Axis of the underlying action and requested coverage under the policies.  Axis denied coverage on the grounds that the underlying action arose from ECC’s alleged intentional unauthorized use of DirectTV’s programming.  ECC and Dr. Taylor filed an action for declaratory judgment on the issue of Axis’s duty to defend and indemnify.  Before a coverage decision was reached, DirecTV and ECC and Dr. Taylor reached a settlement in the underlying action.  Axis was not a party to the settlement and the coverage issues were still pending in the District Court.

The issue before the District Court was set forth in ECC and Dr. Taylor’s motion for partial summary judgment regarding Axis’s duty to defend.  The duty to defend is broader than the duty to indemnify.  Under Maryland law, “[w]here the duty to defend is contested, an insurer may not look outside the underlying pleadings to deny its obligations.  An insured, however, may use extrinsic evidence to establish the potential of coverage.”  Under the policies at issue, Axis agreed to “pay on behalf of the Insured all Damages … as a result of an Occurrence in connection with Scheduled Media during the Policy Period that gives rise to a Claim…”  The coverage is subject to several exclusions, including claims “for or arising out of any actual or alleged … unauthorized access to, unauthorized use of, or unauthorized alteration of any computer or system, hardware, software, program network, data, database, communication network or service, including the introduction of malicious code or virus by any person…”  The Axis policies also provide additional coverage by endorsement for claims “for or arising out of the failure to prevent a party from unauthorized access to, unauthorized use of, tampering with or introduction of a computer virus or malicious code into data or systems.”  This additional coverage, however, does not include claims of “intentional unauthorized access to, unauthorized use of, tampering with or introduction of a computer virus or malicious code into data or systems ….”

The District Court found the term “data” to be ambiguous within the meaning of the unauthorized access exclusions.  The policies do not define “data.”  Therefore, the court looked to the dictionary definition of “data,” which defined “data” as: “facts or information used usually to calculate, analyze, or plan something” or “information that is produced or stored by a computer.”  According to the court, “data” in the context of the Axis policies, “appears to concern information related to the internet, not television programming.”  The court noted that the broad term of “data” stands in contrast to the language elsewhere in the policies that more clearly encompasses television programming.  According to the court, “to interpret ‘data’ as including DirecTV’s television programming would effectively broaden the scope of the exclusion to eliminate any coverage for piracy.”  Thus, the court held that DirectTV’s television programming is not “data” within the meaning of the Axis policies exclusions.

The court went on to find that, even if either exclusion applied to ECC’s allegedly unauthorized access to DirecTV’s television programming, the underlying action contained other legal theories and grounds for relief “distinct and independent from the unauthorized access allegations.”  Under Maryland law, an insurer is obligated to defend, “notwithstanding alternative allegations outside the policy’s coverage, until such time, if ever that the claims have been limited to ones outside the policy coverage.”   Therefore, the court held Axis was obligated to defend ECC in the underlying action.  Ellicott City Cable, LLC v. Axis Ins. Co., No. RDB-15-02506 (D. Md. July 22, 2016).