The insured sued its insurer for its defence costs and funding of a settlement with a business competitor company whose confidential information had been unlawfully transferred to the insured by two of the competitor’s employees as a result of unlawful inducement by the insured’s employee. The use of the word “the” in an intellectual property exclusion in the insurable policy had the effect of creating a purposeful break in the wording, making the exclusion not applicable.
The IP Exclusions states:
“The Insurer shall not be liable … for loss on account of any claim … based upon, arising out of, directly or indirectly resulting from, inconsequence of, or in any way involving any actual or alleged infringement of [intellectual property rights] … or the misappropriation of ideas or trade secrets, or the unauthorised disclosure of or access to confidential information.”
The insured argued that in the circumstances the words “actual or alleged” did not carry over to the cover for misappropriation of ideas. The result was that only actual, as opposed to alleged, misappropriation of trade secrets was required to trigger the exclusion. Seeing there was no indication of actual misappropriation of the trade secrets, the costs and settlement were covered.
The courts found that it made no sense grammatically, in everyday English or otherwise, to read the exclusion as applying to “any actual or alleged … the misappropriation of trade secrets.” This suggested that the inclusion of the word “the” before “misappropriation” represented a purposeful break in the series.
Because the insured set forth a reasonable construction of the exclusion in its favour, the wording was interpreted against the insurer which was obliged to indemnify the insured.
The decision demonstrates how piling up words does not always work to express the intention of the insurer, and a careful reading of exclusions is necessary to ensure they do what they are intended to do.