US Appeal Court Considers Products Exclusion
In a recent American case – W3i Mobile, LLC v. Westchester Fire Insurance Company, 2011 WL 500213 (C.A.8 (Minn.)) – the US Court of Appeals for the 8th Circuit considered a “Products Exclusion” in a Business and Management Indemnity Policy.
W3i Mobile, a provider of mobile content to cellular phone users, sued its insurer for failing to defend and provide an indemnity for the expenses associated with two class actions brought by users of its mobile content. The lawsuits alleged that W3i Mobile billed cellular telephone users for unauthorized mobile content in violation of various state consumer protection statutes, among other allegations.
The Court of Appeals found that the products exclusion in the directors and officers section of the policy applied to preclude coverage for the claims. This exclusion provided that the insurer was not liable for any claims,
. . . alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving . . . any goods or products manufactured, produced, processed, packaged, sold, marketed, distributed, advertised or developed by [W3i Mobile].
The Court of Appeals noted that the class action claims alleged that customers were billed erroneously or without authorization for mobile content, being W3i Mobile’s “product”. The Court rejected M3i Mobile’s characterization of the claims as being merely billing disputes. In particular, the Court emphasized the words “in any way involving” in the products exclusion clause wording.
Sometimes, broadly worded exclusion clauses are “read down” and/or are found to be ambiguous by courts. However, this decision is a good example of an American appeal court giving effect to a broadly worded exclusion clause.