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(Article from Insurance Law Alert, October 2016)

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Reversing a trial court decision, an Ohio appellate court ruled that a letter issued by a software compliance organization was a “claim” under a claims-made policy, but that coverage was barred by a policy exclusion.  Eighth Floor Promotions v. The Cincinnati Ins. Cos., 2016 WL 5900078 (Ohio Ct. App. Oct. 11, 2016).

Eighth Floor, a retail manufacturer, received a letter from the Business Software Alliance (“BSA”), an entity that represents the interests of software companies.  The letter informed Eighth Floor of the BSA’s investigation of the company’s duplication of certain proprietary software products.  The letter requested that the company audit its software and that it preserve as evidence all copies of certain software products.  Eighth Floor retained counsel and sent notice to Cincinnati, its liability insurer.  Cincinnati denied coverage on the basis that the audit request was not a “claim” because it was neither a “written demand for monetary damage or non-monetary relief” nor a “civil proceeding commenced by filing a complaint or similar pleading.”  Thereafter, Eighth Floor discovered numerous unauthorized software installations and entered into a settlement with the BSA.  Cincinnati reiterated its coverage denial, this time citing to a policy exclusion relating to copyright infringement claims.  An Ohio trial court ruled in Cincinnati’s favor, finding that the audit letter did not satisfy the policy’s definition of “claim.”  The appellate court reversed in part.

The appellate court explained that the audit letter was a “demand for non-monetary relief” because it stated that if Eighth Floor did not conduct an audit, the BSA would initiate litigation.  The court further noted that the audit request sought the preservation of evidence and used language indicating its belief that violations had already occurred.  However, the court agreed with Cincinnati that coverage was nonetheless barred by a policy exclusion.