## Facts

- An insurer issued a two-year investment-management liability policy to an investment-management services company.
- During the policy period, patent holders sued the insured for patent infringement based on its use of internet and telephone technologies in providing services to mutual funds.
- The patent suits sought monetary relief, including amounts characterized as royalties or license-type compensation.
- The insured tendered the suits for defense and indemnity under the policy; the insurer denied coverage.
- The insured filed a federal declaratory judgment action seeking coverage and reimbursement of defense and settlement amounts.
- On summary judgment, the insurer argued that the patent claims were barred by an exclusion for “any actual or alleged profits or remuneration to which the insured is not legally entitled.”

## Issues

1. Whether patent-infringement suits arising from the insured’s provision of investment-management services alleged covered “wrongful acts” seeking “damages” within the policy’s insuring agreement.
2. Whether a “profits or remuneration not legally entitled to” exclusion barred coverage where the underlying plaintiffs sought royalty-type relief and related monetary damages.
3. Whether, given the complaints’ allegations and the exclusion’s scope, the insurer owed a duty to defend and (to the extent applicable) a duty to indemnify.

## Decision

- The court granted summary judgment for the insured.
- The court held the patent suits alleged “wrongful acts” in the course of rendering covered services and sought “damages” the insured could be legally obligated to pay.
- The court held the profits/remuneration exclusion did not apply to the patent claims as pleaded.
- The ruling established the insurer’s duty to defend and supported indemnity coverage for settlements or judgments, subject to policy terms and limits.

## Legal Principles

- Broad liability coverage for “damages” arising from “wrongful acts” in professional services can encompass patent-infringement claims when the alleged infringement occurred in providing the covered services.
- A profits/remuneration exclusion is construed narrowly and does not bar coverage merely because damages may be measured by profits or a reasonable royalty; patent damages are treated as compensatory relief for infringement rather than a required surrender of funds the insured was never entitled to keep.
- Ambiguities in exclusions are construed against the insurer and in favor of coverage, particularly where an expansive reading would materially reduce the policy’s protection against third-party liability.
- If a complaint alleges facts potentially within coverage and the exclusion does not clearly apply, the insurer must defend; indemnity follows to the extent the insured’s liability falls within the policy as interpreted.

## Conclusion

The court held that the insurer was obligated to provide coverage for the insured’s defense and related liability arising from patent-infringement suits because the claims sought damages for alleged wrongful acts in the insured’s covered operations and were not barred by the policy’s profits/remuneration exclusion.


Am. Century Servs. Corp. v. Am. Int’l Specialty Lines Ins. Co., No. 00 Civ. 9071 (GEL), 2002 U.S. Dist. LEXIS 15016 (S.D.N.Y. Aug. 16, 2002)