Cincinnati Insurance Company issued a CGL policy to Professional Data Systems (PDS). PDS provides data management services and software to medical clinics. Cincinnati asked for a summary judgment in response to a suit filed against PDS by one of its customers, Heart Of America Eye Care (HOA).

Several years before the lawsuit was filed, HOA operated under a licensing agreement with a data management service that was later purchased by PDS. PDS then assumed the responsibilities of the original service provider. HOA sued PDS, alleging that the latter misrepresented its ability to meet the needs of its clients, that the software was not suited to medical clinic use and that PDS breached its agreement because it did not correct the software problems nor did it provide the expected training or service support. HOA also sought damages due to a substantial loss of data during a failed attempt to convert their client records using PDS software.

When presented with the suit, Cincinnati denied coverage and requested the court to affirm (through summary judgment) that it did not owe PDS a legal defense or coverage because HOA's allegations didn’t qualify for the CGL policy's protection. Conversely, PDS (joined by HOA) requested summary judgment to find the opposite. The defendants argued that coverage could be found because of damages involving advertising injury, negligent misrepresentation and property damage.

The court reviewed the policy language's sections on Business Liability, Property Damage and its definition of "occurrence." The court did not recognize any instance of ambiguous language. It also found that the policy's relevant sections could not reasonably be interpreted as providing coverage for negligent misrepresentation as a form of advertising injury. It also did not believe that HOA's indirect loss of use or its direct loss of business data involved property damage since the accident affected intangible property. Finally, it found that the incident could not be considered an occurrence since it did not involve property damage.

In light of its findings, the court granted Cincinnati's request for summary judgment and denied the request made by PDS and HOA. The insurer was not obligated to either cover or defend the original suit filed against PDS by HOA, so the suit was dismissed.

Cincinnati Insurance Company, Plaintiff, v. Professional Data Services, Inc., and Heart of America Eye Care, P.A., Defendants. U.S. District Court, District of Kansas, No. 01-2610-CM. July 18, 2003. Dismissed. CCH 2003 Fire and Casualty Cases 7499.24