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Background
This piece pertains to a recent matter that was heard in the United States District Court for the District of Massachusetts. The judgment was delivered on 10 February 2026.
Facts
The Plaintiff, a real estate agency, was engaged principally in the brokering of residential real estate. It purchased a Real Estate Agents Errors and Omissions Liability Policy from the Defendant on 5 January 2024, with the policy period running from 7 February 2024 to 7 February 2025.
Under the terms of the policy, the Defendant was obligated to defend and indemnify the Plaintiff against any claim arising out of negligent acts, errors, omissions, or personal injury committed by the Plaintiff in the rendering or failure to render professional services, etc.
As part of its business, the Plaintiff was involved in the marketing and sale of a newly-built home in Bridgewater, Massachusetts. In the marketing materials for the property, the Plaintiff allegedly used drawings and designs produced by the architect on the project.
On 27 September 2024, the architect sued the Plaintiff for copyright infringement. On 4 October 2024, the Plaintiff requested that the Defendant defend it in that action. On 24 October 2024, the Defendant denied the request, citing two policy exclusions. Following a demand letter from the Plaintiff explaining why those exclusions did not apply, the Defendant, on 30 December 2024, renewed its refusal to defend and additionally cited Exclusion A.8(d) as a basis for denial.
Exclusion A.8(d) excludes coverage for disputes involving "conversion, misappropriation, commingling, improper use, theft, embezzlement or defalcation of funds, account information or other property".
The Plaintiff filed a complaint with the Bristol Superior Court in March 2025, seeking a declaratory judgment concerning its entitlement to coverage under the policy and damages to cover legal expenses incurred due to the alleged breach of contract.
Issues for the court's determination
The central issue before the Court was whether Exclusion A.8(d) of the insurance policy applied to exclude coverage for a copyright infringement claim, thereby relieving the Defendant of its duty to defend and indemnify the Plaintiff in the underlying action.
Specifically, the Court was required to determine whether the terms "misappropriation," "improper use," and "other property" within Exclusion A.8(d) were broad enough to encompass claims of copyright infringement.
Court's finding and reasons
The Court found that the Defendant has a duty to defend and indemnify the Plaintiff in the underlying matter, notwithstanding the provisions of Exclusion A.8(d).
The Court reasoned as follows:
Applicable legal principles: under Massachusetts law, insurance policies are construed according to general principles of contract interpretation. The Court must consider what an objectively reasonable insured, reading the relevant policy language, would expect to be covered. A liability insurer owes a broad duty to defend its insured against any claims that create a potential for indemnity. An insurer is required to defend if the allegations in the underlying suit are "reasonably susceptible" to an interpretation that they allege a claim covered by the policy. Importantly, the insurer bears the burden of establishing that an exclusion applies, and exclusions should be read narrowly, with any ambiguities strictly construed against the insurer.
Contextual interpretation of "Other Property": the Court applied the canons of ejusdem generis (that being, the same kind) and noscitur a sociis (that is, 'it is known by its associates) to interpret the exclusion. The words immediately preceding "other property"—namely, "funds" and "account information"—clearly refer to financial assets. Accordingly, "other property" should be interpreted to refer only to other types of property like those expressed i.e., other forms of financial assets. If "property" were construed so broadly as to include all kinds of property, tangible and intangible, the specifically expressed terms would be rendered redundant, which the Court cannot assume.
Contextual interpretation of "Misappropriation" and "Improper Use": the other words in the exclusion—"conversion, commingling, theft, embezzlement or defalcation"—refer to forms of intentionally tortious conduct. The terms "misappropriation" and "improper use" should therefore not be construed to cover claims arising out of conduct that is not intentional, including negligence or statutory violations such as copyright infringement. The Court further noted that the exclusion does not include the word "infringement," which is the normal term used to describe a violation of copyright; if the insurer intended that the exclusion covered such claims, it could have said so in plain language.
Purpose of the Policy: the exclusion must be read in the context of the likely business risks that a reasonable insured would expect to be covered. Real estate agents extensively use marketing materials, including photographs, floor plans, and other visual and written materials, and thereby run the risk that they may unwittingly use the copyright or other intellectual property of another, such as a photographer or architect. If activities such as inadvertent copyright infringement constitute "misappropriation" or "improper use" of "property," the exclusion would eliminate a substantial portion of the risks that the insured would expect to be covered.
Relevance for South Africa
This judgment is relevant for South African insurance industry and jurisprudence in several respects including:
Contra Proferentem Rule: South African law similarly applies the contra proferentem rule, whereby ambiguous terms in a contract are construed against the party who drafted them—typically the insurer in the context of insurance policies. This judgment serves as a useful comparative illustration of how courts apply this principle to exclusion clauses in copyright infringement policy extensions.
Contextual interpretation of Contracts: The Court's reliance on the canons of ejusdem generis and noscitur a sociis aligns with South African principles of contractual interpretation. South African courts similarly interpret contractual terms in their context, having regard to the words that surround them and the purpose of the contract as a whole.
Professional Indemnity in the property sector: the judgment highlights the risks faced by real estate professionals in the ordinary course of business, including the potential for inadvertent intellectual property infringement through the use of marketing materials. South African estate agents and property practitioners should be mindful of these risks and ensure their professional indemnity insurance adequately covers claims of this nature.
Narrow Interpretation of Exclusions: the case reinforces the principle that exclusions should not be interpreted so broadly as to defeat the reasonable expectations of the insured or "swallow the coverage."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
