Cox Sues Insurers for Failing to Cover Landmark Piracy Lawsuit

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Internet provider Cox Communication has fought several piracy-related claims in court over the past decade. In one of the lawsuits, against music rights group BMG, it chose to settle, presumably for millions of dollars. The company hoped that its insurers would help cover the costs, but after the companies declined, Cox is now back in court after suing them both.

At the end of 2014, a novel type of lawsuit appeared on the docket of a Virginia federal court.

BMG Rights Management and Round Hill Music sued Internet provider Cox Communications for failing to terminate the accounts of pirating subscribers.

This was the first in a series of “repeat infringer” lawsuits which continue to this day. Most notable thus far is the $1 billion damages award against Cox in favor of several major record labels, which is still under appeal today.

$25 Million Piracy Damages

The BMG lawsuit is no longer active. After the court initially awarded $25 million in damages, plus $8.5 million in costs, Cox appealed the matter. Not much later, the dispute was settled for an undisclosed sum.

Without mentioning any figures, BMG said that it was “extremely happy” with the “substantial settlement.” Not just that, the music rights company said that it had set a new standard for all U.S. Internet providers.

“This was a landmark case in which BMG took on the third-biggest internet service provider in the United States to defend and establish the principle that in order to benefit from a so-called ‘safe harbor’ defense, an ISP has responsibilities,” BMG’s General Counsel Keith Hauprich told us at the time.

Hauprich was right, as evidenced by many similar lawsuits that have since been filed. The ruling motivated many ISPs to change or refresh their repeat infringer policies while Cox turned to its insurance companies to pick up the bill.

Following the original verdict, before the eventual settlement, Cox informed its insurance companies Hiscox and ACE American Insurance of its claim. The ISP hoped to receive compensation, but both insurers declined to cover its losses.

Cox Sues Insurance Companies

Hoping to break the stalemate, Cox engaged in a mediation procedure with both parties, also without result. This means that, nine years after losing its case against BMG, Cox is now suing its insurance companies for damages.

In a complaint filed at a federal court in Atlanta, Georgia, the ISP accuses the insurance companies of contract breach. Cox alleges that the copyright infringement damages should be covered by the policies, which relate to claims from its ‘media activities’.

The Hiscox policy has a limit of $15 million and includes legal defense costs, with a $500,000 per claim retention. ACE American’s policy has the same terms and, according to Cox’s reading, they require the insurers to cover its claim.

There’s no mention of the amount at stake, so the settlement figure remains confidential. However, Cox does suggest that its defense costs alone were higher than the ‘remaining’ policy limit.

“The amount of defense costs incurred by Cox in its defense of the BMG Action alone exceeds the amount of the Hiscox Policy’s remaining limit,” Cox writes.

Beach of Contract?

The ISP believes that its insurers should pay out, covering both the legal costs and the undisclosed settlement amount that Cox agreed to pay.

“Defendants have breached their obligations under the Policies by denying coverage and refusing to indemnify Cox for the liabilities and costs incurred by Cox in connection with the BMG Action.

“Defendants are obligated to indemnify Cox for all sums that Cox has paid or has or will become obligated to pay in connection with the BMG Action, including the costs incurred by Cox in its defending the BMG Action and the payment that effectuated the settlement of the BMG Action.”

Insurance policies often prove to be complicated, especially when there’s wiggle room, but with millions of dollars at stake it’s an issue worth fighting for both parties.

Interestingly, this isn’t Cox’s first insurance-related lawsuit related to the BGM case. In 2015, Lloyd’s underwriter Beazley Insurance requested a judgment declaring that it wouldn’t have to pay out anything.

The insurer argued that the BMG lawsuit was the result of an intentional business policy, which shouldn’t be covered by its policy. This dispute was voluntarily dismissed a few months later, and any further outcome remains unknown.

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A copy of the complaint, filed by Cox at the U.S. District Court for the Northern District of Georgia, Atlanta division, is available here (pdf)