Contextual Interpretation of Policy Exclusions: Court Confirms that a Broadly Worded Property Exclusion Does Not Extend to Copyright Infringement

In Nichole Sliney Realty Team, Inc. v. Mount Vernon Fire Insurance Company, Judge F. Dennis Saylor IV of the United States District Court for the District of Massachusetts granted a motion for judgment on the pleadings brought by the insured, holding that Mount Vernon Fire Insurance Company owed a duty to defend (and indemnify) its insured real estate agency against an underlying copyright infringement claim. The court rejected the insurer’s reliance on a policy exclusion directed at disputes involving “conversion, misappropriation, commingling, improper use, theft, embezzlement or defalcation of funds, account information or other property.”

Background

The insured, a Massachusetts real estate brokerage, held a Real Estate Agents Errors and Omissions Liability Policy underwritten by Mount Vernon Fire Insurance Company, covering the period from 7 February 2024 to 7 February 2025. The policy required the insurer to defend and indemnify the insured against claims arising from negligent acts, errors, omissions, or personal injury committed in rendering professional services, and to defend any covered claim even if the underlying allegations were groundless, false, or fraudulent. During the course of marketing a newly built home for sale, the insured allegedly used drawings and designs produced by the project architect in its marketing materials without authorisation. The architect subsequently sued the insured for copyright infringement.

The insured requested that the insurer defend it in the underlying action. The insurer initially declined on the basis of two other exclusions – one for claims based on anti-trust, price-fixing, restraint of trade, or deceptive trade practices, and another for claims seeking a personal profit or advantage to which the insured was not legally entitled. It was only in a later letter renewing its refusal to defend that the insurer additionally invoked the exclusion at issue in the litigation, for disputes involving “(d) conversion, misappropriation, commingling, improper use, theft, embezzlement or defalcation of funds, account information or other property.” The insurer’s position in the coverage litigation was that the copyright infringement claim amounted to “misappropriation” or “improper use” of “other property,” such that the exclusion barred cover.

The insured commenced proceedings seeking a declaratory judgment on its entitlement to a defence and indemnity, together with damages for breach of contract in respect of legal expenses incurred. It moved for partial judgment on the pleadings on the duty-to-defend issue, while the insurer cross-moved for summary judgment on both counts. The court granted the insured’s motion and denied the insurer’s cross-motion.

The Court’s Analysis

The court emphasised that, under the applicable law, policy exclusions are read narrowly and construed against the insurer, and that all terms of a contract must be interpreted in the context in which they appear. In doing so, the court applied established interpretive canons under which a general term appearing alongside a list of specific terms takes its meaning from those specific terms, so that a broad catch-all is not read so widely as to become inconsistent with the narrower words that accompany it.

First, the court held that the words immediately preceding “other property” in the exclusion – “funds” and “account information” – clearly referred to financial assets, or to the means of accessing them. Reading “other property” in that context, the court concluded it should be understood to refer only to other forms of financial assets similar in kind to those enumerated, not to property in general. The court drew on an earlier decision holding that a lease clause requiring removal of “equipment, ducts, fixtures, materials or other property” referred only to movable property and not to a concrete floor, even though a floor could, in the abstract, be described as “other property.” The court applied the same reasoning here: “other property” took its colour from the specific, financially-oriented terms that preceded it.

Secondly, the court held that interpreting “other property” so broadly as to include intangible property, such as copyright, would render the specifically listed examples of “funds” and “account information” superfluous, since a term broad enough to capture all forms of property would leave no independent work for those narrower examples to do. This was inconsistent with the ordinary interpretive principle that every word in an insurance contract must be presumed to have been used with a purpose, such that a court should not adopt a reading that strips particular terms of independent meaning. The court applied the same reasoning to the terms “misappropriation” and “improper use,” holding that these too had to be read in light of the surrounding words – “conversion,” “commingling,” “theft,” “embezzlement,” and “defalcation” – all of which described forms of intentional wrongdoing. On that basis, “misappropriation” and “improper use” could not properly be read to capture conduct that was not intentional, such as negligence or a statutory violation like copyright infringement. The court also noted that the exclusion did not use the word “infringement” itself – the ordinary term for a violation of copyright – and that the insurer could readily have used that word if it had intended the exclusion to capture copyright claims.

Thirdly, the court held that an exclusion must also be read in light of the purpose of the overall policy and the business risks that an objectively reasonable insured would expect the policy to cover. In this instance, the insured was a real estate agency, and the policy was a specialised errors and omissions product designed to respond to the professional risks incident to the conduct of a real estate business.

The court found that real estate agents make extensive use of marketing materials – including photographs, floor plans, and other visual and written content – and, in doing so, run the risk of unwittingly using the copyright or other intellectual property of a photographer, architect, or other third party. The court also observed, by way of comparison, that real estate agents routinely enter clients’ properties and thereby run other risks incidental to their business, such as inadvertent trespass or negligently creating a hazard. If conduct of this kind were treated as “misappropriation” or “improper use” of “property,” the exclusion would eliminate a substantial portion of the very risks the insured would reasonably expect the policy to cover – which is not how a reasonable insured would read the policy, since an exclusion should not be read so as to effectively swallow the cover it is meant to complement. The court concluded that no reasonable policyholder would read the exclusion as extending to a copyright infringement claim and that, at the very least, the exclusion was ambiguous in this respect – noting, in addition, that the insurer’s own shifting reliance on different exclusions over the course of the dispute was itself evidence supporting that conclusion of ambiguity.

Accordingly, the court held that the insurer owed a duty to defend, and to indemnify, the insured in the underlying action, notwithstanding the exclusion. The court further held that, under the applicable law, an insured who successfully establishes an insurer’s duty to defend is entitled to recover the reasonable attorneys’ fees and expenses incurred in doing so, and directed the insured to file a motion for such fees and expenses.

Takeaway

This decision reinforces the principle that policy exclusions must be interpreted contextually and holistically. Where an exclusion contains a series of specifically enumerated examples followed or accompanied by a broader general term, the specific examples inform and narrow the scope of the general term. Courts will not permit a broad residual phrase to swallow up the specifically listed items and extend the exclusion far beyond its evident purpose. Equally, courts will resist an interpretation that renders the express examples in an exclusion superfluous or redundant, applying the established principle that contractual provisions should be given meaningful effect rather than treated as surplusage. In determining the scope of an exclusion, courts will have regard to the reasonable expectations of the insured and to the particular business risks that the relevant class of policy is designed to address. Where genuine ambiguity persists in the language of an exclusion – as distinct from an insuring clause – that ambiguity will generally be resolved in favour of the insured and against the insurer that drafted the policy.

For insurers, the practical drafting lesson is clear. Exclusions that rely on general property-related or asset-related language – without express carve-outs or inclusions addressing intellectual property, copyright, or similar intangible rights – may be read narrowly by courts applying ordinary interpretive principles. If an insurer intends an exclusion to capture disputes involving intangible rights such as copyright or other forms of intellectual property, that intention must be expressed clearly and specifically in the policy wording, rather than left to be inferred from a general residual term appended to a list of financial wrongs.