Eyeblaster, Inc. v. Federal Insurance Company

Eyeblaster, Inc. (Eyeblaster) (plaintiff) is an online marketing-campaign management company that creates online, interactive advertising. Eyeblaster creates interactive ads that use cookies, JavaScript, and Flash. Eyeblaster does not employ spyware or expose viewers of its ads to spam, viruses, or malware. Eyeblaster purchased a general-liability insurance policy from Federal Insurance Company (FIC) (defendant). Pursuant to this policy, FIC had a duty to defend Eyeblaster against lawsuits arising from property damage caused by a covered occurrence. Property damage was defined as “physical injury to tangible property, including resulting loss of use of that property . . . or loss of use of tangible property that is not physically injured.” Software was excluded from the definition of tangible property. David Sefton sued Eyeblaster. Sefton’s amended complaint alleged that Eyeblaster had infected Sefton’s computer with spyware. After that initial alleged infection, Sefton claimed that his computer stopped working, causing him to incur loss. Although Sefton’s computer became operational without repair, it suffered from various other problems, such as pop-ups, slower performance, targeted advertising, and a hijacked browser. After Sefton filed each complaint, Eyeblaster turned over defense of the complaint to FIC. FIC denied all coverage, because, it claimed, the lawsuit did not assert claims of bodily injury or property damage caused by an accident or covered occurrence. Although Sefton alleged property damage, he did not allege that an accident or occurrence caused the property damage. Eyeblaster sued FIC, seeking a declaration that FIC had a duty to defend Eyeblaster in the Sefton lawsuit. The district court granted summary judgment to FIC, upon finding that the Sefton complaint alleged only damage to software, which was excluded under the policy. Eyeblaster appealed.