A recent ruling by a Manhattan federal judge has determined that a unit of Travelers Insurance is obligated to cover the defense and settlement costs incurred by Scholastic Inc. in a trademark and copyright infringement lawsuit. However, the insurer is not required to pay the consequential damages that Scholastic had sought.
The case originated when Vanderbilt University filed a lawsuit against Scholastic, alleging infringement of intellectual property rights. Scholastic settled the lawsuit in 2021 and subsequently sought reimbursement from Travelers for the defense and settlement expenses. Travelers denied the claim, leading Scholastic to file a lawsuit seeking a declaration that Travelers had a duty to defend and indemnify the company for all losses resulting from the Vanderbilt action, as well as damages for breach of contract.
In the ruling, the judge granted Travelers’ motion to dismiss Scholastic’s claim for attorneys’ fees in the litigation, citing the “American Rule,” which generally prohibits the recovery of attorneys’ fees in the absence of a statute or enforceable contract providing for them. The court also dismissed Scholastic’s claim for consequential damages related to unpaid defense costs in the Vanderbilt action, to the extent that the claim was for such damages. Additionally, the judge struck allegations that Travelers breached the duty of good faith and fair dealing and violated representations to policyholders and the public at large.
This decision underscores the complexities involved in insurance coverage disputes, particularly concerning the scope of an insurer’s duty to defend and indemnify policyholders in intellectual property litigation. It also highlights the importance of clear contractual language and the challenges policyholders may face when seeking coverage for defense costs and settlements in such cases.
For more detailed information on the case, you can refer to the court’s opinion and order available on Justia’s website: Scholastic Inc. v. St. Paul Fire and Marine Insurance Company.