IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

LEMKO CORPORATION,

Plaintiff,

v.

FEDERAL INSURANCE COMPANY, and 

CINCINNATI INSURANCE COMPANY,

Defendants.

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No. 12 C 03283

Judge John J. Tharp, Jr. 

MEMORANDUM OPINION AND ORDER

In this insurance coverage dispute, the plaintiff, Lemko Corporation, seeks to impose a 

duty to defend on two of its liability insurers with respect to a lawsuit filed against Lemko by 

Motorola, Inc., that has since settled. Lemko, a cellular technology company and competitor of 

Motorola, was sued for a range of torts and civil statutory violations stemming from the alleged 

theft of copyrighted material and other confidential information by Motorola employees who 

were also working (allegedly) for or on behalf of Lemko. The defendant insurers declined 

coverage, concluding that their policies either did not provide or expressly excluded coverage for 

the events at issue in the Motorola lawsuit. All parties have now moved for partial or total 

summary judgment as to their liability. For the reasons that follow, Lemko’s motion is denied, 

and the insurers’ motions are granted. 

FACTS

Motorola first brought suit against Lemko and five individuals on September 23, 2008. 

Compl., Dkt. # 1, N.D. Ill. Case No. 08 C 5487. The complaint was amended three times; the 

third amended complaint (TAC) of July 16, 2010, contains largely the same substantive claims 

against a total of 16 defendants. The TAC sets forth nineteen counts seeking relief under the 
following theories: (1) violation of the Computer Fraud and Abuse Act; (2) misappropriation of 

trade secrets; (3) breach of fiduciary duty; (4) usurpation of corporate opportunity; (5) patent 

ownership; (6) breach of contract, namely, employment agreements; (7) tortious interference 

with contract; (8) fraudulent concealment; (9) spoliation of evidence; (10) copyright 

infringement; and (11) civil conspiracy. TAC, Dkt. # 473, N.D. Ill. Case No. 08 C 5487. All of 

these counts are based on the same underlying facts—namely, the accessing of Motorola 

computers without authorization, or in excess of existing authorization, to obtain Motorola’s 

trade secrets and confidential information, including source code, and their transfer to Lemko,

during a period running from approximately 2002 to 2007. 

When it was sued by Motorola, Lemko turned to its insurers for coverage—to Federal 

beginning with the original complaint, and to Cincinnati beginning with the Second Amended 

Complaint. Each denied Lemko’s claim. Lemko entered into a standstill agreement with 

Cincinnati but not Federal; Federal, however, did not seek a declaratory judgment regarding its 

duty to defend, nor did it defend under a reservation of rights. 

The Policies

A. Cincinnati Commercial General Liability and Umbrella Policy

Under the Cincinnati CGL policy, Lemko has coverage for “bodily injury and property 

damage liability” during the policy period.1 The coverage applies to the extent Lemko is liable to 

pay damages because of “bodily injury” or “property damage” that occurs during the policy 

period and that is “caused by an ‘occurrence’ that takes place in the ‘coverage territory.’” An 

“occurrence,” under the policy, is “an accident, including continuous or repeated exposure to 

substantially the same general harmful conditions.” And “property damage” is defined as:

1 The policy period for the Cincinnati policy was December 1, 2003, to September 19, 

2005 (when Lemko cancelled the coverage before the three-year term was up). 

2
a. Physical injury to all tangible property, including all resulting loss of 

use of that property. All such loss of use shall be deemed to occur at the 

time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such 

loss of use shall be deemed to occur at the time of the “occurrence” that 

caused it.

For the purposes of this insurance, “electronic data” is not tangible 

property.

The property damage coverage is subject to an exclusion for “expected or intended 

injury,” namely: “’property damage’ which may reasonably be expected to result from the 

intentional or criminal acts of the insured or which is in fact expected or intended by the insured, 

even if the injury or damage is of a different degree or type than actually expected or intended.” 

The same Cincinnati policy also covers Lemko for “personal and advertising injury 

liability.” The coverage applies to such injuries committed in “the coverage territory” during the 

policy period, and “caused by an offense arising out of your business.” Personal and advertising 

injury is injury arising out of, inter alia: “infringing upon another’s copyright, trade dress or 

slogan in [the insured’s] ‘advertisement.’” And, in turn, an “advertisement” is defined as:

a notice that is broadcast, telecast or published to the general public or 

specific market segments about your goods, products or services for the 

purpose of attracting customers or supporters. ‘Advertisement’ includes 

a publicity article. For purposes of this definition:

a. Notices that are published include material placed on the Internet or 

on similar electronic means of communication; and

b. Regarding web-sites, only that part of a web-site that is about your 

goods, products or services for the purposes of attracting customers or 

supporters is considered an “advertisement.” 

As relevant in this case, the advertising injury coverage is subject to three exclusions—

for “knowing violation of rights of another,” for “breach of contract,” and for “infringement.”

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The first of these exclusions applies to “’personal and advertising injury’ caused by or at the 

direction of the insured with the knowledge that the act would violate the rights of another and 

would inflict ‘personal and advertising injury.’” The second excludes coverage for injury 

“arising out of a breach of contract, except an implied contract to use another’s advertising idea 

in your ‘advertisement.’” Finally, the coverage does not apply to “’personal and advertising 

injury’ arising out of the infringement of copyright, patent, trademark, trade secret or other 

intellectual property rights”; except that “this exclusion does not apply to infringement, in your 

‘advertisement’ of copyright, trade dress or slogan.”

B. Federal General Liability Policy and Excess and Umbrella Policy

Lemko’s coverage under its Federal CGL and Excess and Umbrella policies also 

extended to “bodily injury or property damage caused by an occurrence” during the policy 

period.2 And as with the Cincinnati CGL policy, under the Federal CGL policy an “occurrence” 

is “an accident, including continuous or repeated exposure to substantially the same harmful 

conditions.” “Property damage” is defined as follows: 

physical injury to tangible property, including resulting loss of use of 

that property. All such loss of use shall be deemed to occur at the time of 

the physical injury that caused it; or

loss of use of tangible property that is not physically injured. All such 

loss of use shall be deemed to occur at the time of the “occurrence” that 

caused it.

Tangible property does not include any software, data or other 

information that is in electronic form. 

2 The applicable policy periods for the Federal policies are: (1) Policy No. 6802-5852

(D&O), effective September 19, 2008 to September 19, 2009; (2) Policy No. 3583-41-23 (CGL) 

effective from September 19, 2005 to September 19, 2008; and (3) Policy No. 7982-24-51

(Excess and Umbrella), effective from September 19, 2005 to September 19, 2008. 

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Lemko also had coverage for liability for “advertising injury,” caused by “an offense that 

is first committed during the policy period.” “Advertising injury” is defined in the Federal CGL 

policy as “injury . . . sustained by a person or organization and caused by an offense of 

infringing, in that particular part of your advertisement about your goods, products, products, or 

services upon their copyrighted advertisement or registered collective mark, registered service 

mark or other registered name, slogan, symbol, or title.” And, an “advertisement” means “[a]n 

electronic, oral, written or other notice, about goods, products or services, designed for the 

specific purpose of attracting the general public or a specific market segment to use such goods, 

products or services,” but not “any e-mail address, Internet domain name or other electronic 

address or metalanguage.”

As relevant to this case, the Federal CGL policy contained three exclusions to the type of 

coverage Lemko is invoking. First, as to both property damage and advertising injury, the policy 

contains an intellectual property laws or rights exclusion for injuries “arising out of, giving rise 

to or in any way related to any actual or alleged assertion; or infringement or violation; by any 

person or organization (including any insured) of any intellectual property law or right, 

regardless of whether this insurance would otherwise apply to all or part of any such actual or 

alleged injury or damage in the absence of any such actual or alleged assertion, infringement or 

violation” except that the exclusion does not apply if the injury “is caused by an offense 

described in the definition of advertising injury; and does not arise out of, give rise to or in any 

way relate to any actual or alleged assertion, infringement or violation of any intellectual 

property law or right, other than one described in the definition of advertising injury.”

Second, the “Expected Or Intended Exclusion” bars coverage for property damage or 

advertising injury arising out of an offense, committed by or on behalf of the insured, that is 

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“intended by the insured; or would be expected from the standpoint of a reasonable person in the 

circumstances of the insured" to cause property damage or advertising injury. Third, the “Crime 

or Fraud” exclusion bars coverage, solely with respect to advertising injury, to the extent the 

injury “aris[es] out of any criminal or fraudulent conduct committed by or with the consent or 

knowledge of the insured.” 

C. Federal Directors & Officers Policy

Finally, Lemko had D&O liability coverage for losses (including liability for damages 

and settlements) caused by “wrongful acts” The policy defined wrongful acts as:

(1) any error, misstatement, misleading statement, act, omission, neglect, 

or breach of duty committed, attempted, or allegedly committed or 

attempted by:

(a) For purposes of coverage under Insuring Clauses (A) and (B): any 

Insured Person in his or her capacity as such, or any matter claimed 

against any Insured Person solely by reason of his or her status as such;

(b) For purposes of coverage under Insuring Clause (C): any Insured 

Organization; or

(c) For purposes of coverage under Insuring Clause (D): any 

Executive; or

(2) any Outside Capacity Wrongful Act.

The D & O policy also contained the following exclusion: “[N]o coverage will be 

available under the Coverage Section identified above for any Claim against an Insured based 

upon, arising from, or in consequence of any actual or alleged infringement of copyright, patent, 

trademark, trade name, trade dress, service mark or misappropriation of ideas or trade secrets.”

DISCUSSION

Summary judgment is appropriate when “the movant shows that there is no genuine 

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.

Civ. P. 56(a); Northfield Ins. Co. v. City of Waukegan, 701 F.3d 1124, 1129 (7th Cir. 2012). In 

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this case, the parties agree that no disputes of fact exist; the sole question is whether, as a matter 

of law, either insurer has a duty to defend Lemko with respect to the Motorola lawsuit. 

The parties agree that this question is governed by Illinois law, under which the Court 

must compare the allegations in the underlying Motorola complaint with the express language in 

the insurance policies to determine whether the insurers’ duty to defend has been triggered. See 

Northfield Ins. Co., 701 F.3d at 1129; Pekin Ins. Co. v. Wilson, 930 N.E. 2d 1011, 1016-1017

(Ill. 2010); Am. States Ins. Co. v. Koloms, 687 N.E.2d 72, 75 (Ill. 1997). “If the facts alleged in 

the underlying complaint fall within, or potentially within, the policy’s coverage, the insurer’s 

duty to defend arises.” Pekin Ins. Co., 930 N.E. 2d at 1017. An insurer may justifiably refuse to 

defend the insured only if it is clear from the face of the underlying complaint that the allegations 

fail to state facts which bring the case within, or potentially within, the policy’s coverage.

Northfield Ins. Co., 701 F.33d at 1129 (quotation marks and citations omitted). 

“Like any contract under Illinois law, an insurance policy is construed according to the 

plain and ordinary meaning of its unambiguous terms.” Schuchman v. State Auto Property &

Casualty Ins. Co., 733 F.3d 231, 235 (7th Cir. 2013) (quotation marks and citation omitted). See 

also, e.g., Koloms, 687 N.E.2d at 75. But if the terms of the policy are susceptible to more than 

one meaning, despite application of the standard tools of textual interpretation, they are 

considered ambiguous and will be construed strictly against the insurer who drafted the policy. 

Schuchman, 733 F.3d at 238; Koloms, 687 N.E.2d at 75. Furthermore, “[a] court must construe 

the policy as a whole and take into account the type of insurance purchased, the nature of the 

risks involved, and the overall purpose of the contract.” Id.

Before the question of coverage can be answered, there is the threshold issue of whether 

Federal is estopped from raising any policy defenses in this lawsuit due to its failure to either 

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defend Lemko under a reservation of rights or to seek a declaratory judgment that it had no duty 

to defend. (Lemko does not argue estoppel as to Cincinnati, with which it entered a standstill 

agreement.) Lemko contends that the Court must ignore Federal’s coverage arguments, whereas 

Federal contends that Lemko takes an overly broad view of estoppel and that, because it 

correctly denied coverage, estoppel does not apply. 

Under Illinois law, an insurer that breaches the duty to defend is estopped from raising 

policy defenses to coverage. Employers Ins. of Wausau v. Ehlco Liquidating Tr., 708 N.E.2d 

1122, 1132 (Ill. 1999). The insurer has two options: “(1) defend the suit under a reservation of 

rights or (2) seek a declaratory judgment that there is no coverage.” Id. at 1134-35. “If the insurer 

fails to take either of these steps and is later found to have wrongfully denied coverage, the 

insurer is estopped from raising policy defenses to coverage.” Id. at 1135 (emphasis added). As 

the italicized clause shows, then, estoppel is triggered only upon a finding that coverage was 

wrongfully denied. “If the insurer has no duty to defend because it was not given an opportunity 

to defend, there was no insurance policy in existence, or there was no coverage or potential for 

coverage, the estoppel doctrine does not apply.” Hunt v. State Farm Mut. Auto. Ins. Co., 994 

N.E. 2d 561, 566 (Ill. App. Ct. 2013); West American Ins. Co. v. Midwest Open MRI, Inc., 989 

N.E.2d 252, 261 (Ill. App. Ct. 2013) (“Thus, whether estoppel applies necessarily depends on 

whether the insurer had and breached a duty to defend.”). At this point in the case, we have only 

Lemko’s allegation of a breach of the duty to defend—no “finding.” Therefore, the Court may 

consider Federal’s policy defenses in analyzing whether there was a duty to defend. Of course, 

the duty to defend applies not only where the policy provides coverage, but where it potentially

provides coverage. Therefore, there is somewhat more risk to Federal in having simply refused to 

defend, but that choice does not preclude Federal from contesting Lemko’s duty to defend claim.

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In this case, Lemko claims that both insurers’ CGL and umbrella policies, which covered 

“property damage” liability and “advertising injury” liability, apply to its costs of defending the 

Motorola lawsuit. (Lemko does not seek indemnification for the settlement amount.) Lemko 

further argues that Federal’s D & O policy covers those costs under its “wrongful acts” 

provision. The insurers each argue that there is no coverage under their policies for the events 

that are set forth in the Motorola pleadings, and further, that the policies affirmatively exclude 

coverage. 

A. Property Damage Liability

As set forth above, both insurers’ CGL policies cover liability for “property damage,” 

similarly defined, and the same analysis applies to both. To prevail against either insurer based 

on these policies, Lemko must show that the Motorola complaint alleges that during the 

applicable policy period, Motorola suffered “physical injury to tangible property” or “loss of use 

of tangible property that is not physically injured,” caused by an “occurrence.” Cincinnati argues 

that coverage does not apply under the plain language of the policy. Both insurers also argue that 

the exclusion for “expected or intended injury” precludes coverage.

Cincinnati contends that the Motorola complaint does not allege any property damage, 

and it points in particular to Lemko’s answers to contention interrogatories asking which specific 

allegations in the Motorola complaint arguably pertained to “property damage.” Lemko 

identified 32 paragraphs from the TAC, but the Court agrees with Cincinnati that all but three of 

those paragraphs plainly do not allege property damage.3 The three remaining paragraphs (¶¶ 55, 

3 Paragraphs 140, 147, 154, 160, 167, 174, 188, 204, 221, 231, 242, 254, 265, 275, 282, 

290, 303, 315, and 338 of the TAC contain no independent factual allegations; they simply reincorporate previously alleged facts. Paragraphs 60, 61, 64, 65, 66, 67, 86, 88, and 89 are 

similarly irrelevant; they include only allegations of facts about events that occurred after the 

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59, and 144) are the sole foundation for the property damage argument Lemko advances in its 

own summary judgment motion and its response to Cincinnati’s motion. Lemko’s case for 

“property damage” coverage depends solely on allegations that in accessing Motorola’s 

computers to obtain and transfer trade secrets and confidential information, the Lemko

defendants “knowingly and recklessly caus[ed] damage and loss by impairing the integrity 

and/or availability of the Motorola proprietary trade secrets and confidential information and the 

Motorola protected computers.” See Motorola TAC ¶¶ 54, 59 (emphasis added). The final 

allegation (which appears only within a count of the complaint that Lemko successfully had 

dismissed for failure to state a claim) similarly states that at an unspecified time, and as a result 

of the unauthorized access and transmission of data, “defendants . . . intentionally and without 

authorization, recklessly caused damage and loss to the secure protected computers of Motorola 

and/or other protected computers).” TAC ¶ 144.

Lemko argues that because “property damage” includes “loss of use of tangible property 

that is not physically injured,” the Motorola complaint’s allegations that the “integrity and/or 

availability” of “computers” was “impair[ed],” or that “protected computers” suffered “damage 

and loss” constitute allegations of “property damage.” But while the TAC does claim that the 

actions of several defendants “impair[ed] the integrity and/or availability of .... the Motorola 

protected computers,” (¶¶ 54, 59, 144), the statement is an empty conclusion that merely parrots 

the CFAA statutory requirement of intentional damage to a protected computer and lacks any 

factual support that would make the claim plausible.4 Legal conclusions do “not give rise to 

Cincinnati policy expired. Paragraph 139 contain only allegations regarding unauthorized access 

to data and says nothing at all about any resulting property damage. 

4 In February 2009, Lemko achieved dismissal of Count I of the original Motorola 

complaint, alleging a violation of the CFAA, on the ground that no damages were alleged. 

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coverage under the duty to defend.” Hartford Ins. Co. v. Kelly, 309 Ill. App. 3d 800, 806, 723 

N.E.2d 288, 293 (1st Dist. 1999). Further, the computer impairment phrase is insufficient to 

trigger a duty to defend not only because it is conclusory but also because it is “inconsistent with 

the larger complaint and the detailed allegations” concerning the insured’s conduct. National 

Union Fire Ins. Co. v. Absolute Title Servs., Inc., No. 09 C 04165, 2011 WL 4905660, at *2

(N.D. Ill. 2011).

Discounting the conclusory computer impairment allegation does not run afoul of the 

teachings that an insurer cannot avoid its duties of defense and indemnification by reference to 

the core or dominant character of the plaintiff’s allegations, and that the insurer must defend if 

any conduct alleged in the complaint falls within the insurance policy, even if those allegations 

are only a “subordinate aspect” of the complaint. See Curtis-Universal, Inc. v. Sheboygan 

Emergency Medical Services, Inc., 43 F.3d 1119, 1122 (7th Cir.1994). Computer impairment is 

not a “subordinate aspect” of the allegations concerning misappropriation of Motorola’s 

confidential information; it is no aspect at all. The CFAA claim, the source of the boilerplate 

recitations of impaired availability of computers found in the only three paragraphs that relate to 

this issue, includes no allegations whatsoever that Motorola was physically unable to use its 

computers there are no allegations that the operability or availability of the computers was 

compromised in any way because of the alleged unauthorized access and copying or 

transmission.5 Indeed, Motorola did not even discover the unauthorized access for years and 

Thereafter, Motorola re-pleaded the claim solely to preserve it on appeal. Accordingly, after the 

dismissal of that claim, there was nothing to “defend” and no duty. 

5 Lemko is hard-pressed to argue otherwise, given that in its motion to dismiss 

Motorola’s CFAA claim, it argued—successfully—that Motorola alleged nothing but 

misappropriation of information in that count:

Where a trade secret has been misappropriated through the use of a 

computer, such conduct alone cannot show impairment to the integrity or 

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continued to use its computers in the meantime without any degradation in performance or 

availability.

The point of a “loss of use” provision like that in the insurers’ CGL is to provide 

compensation when an occurrence prevents the use of undamaged property—such as when 

accidental damage to a structure prevents a company from physically reaching its computers in 

order to carry on its business, see, e.g., Manpower, Inc. v. Ins. Co. of Penn., 732 F.3d 796 (7th 

Cir. 2013), or when a crane collapses in front of a restaurant, blocking access to it, Eljer Mfg. 

Inc. v. Hiberty Mut. Ins. Co., 972 F.2d 805, 810 (7th Cir. 1992) (explaining with this 

hypothetical example that language “loss of use of tangible property which has not been 

physically injured or destroyed” covers “injury that is not ‘physical’ because there is no physical 

touching of the tort victim’s property.”). But so far as the record in this case reveals, Motorola 

had complete access to, and the use of, its computers at all times; the facts alleged in the TAC do 

not establish that the conduct alleged interfered in any way with Motorola’s possessory rights, 

Lyons v. State Farm Fire and Cas. Co, 349 Ill. App. 3d 404, 412, 811 N.E. 2d 718, 726 (5th Dist. 

2004), to its equipment. What Motorola alleged it lost was not the use of its equipment but the 

value associated with its exclusive rights in its intellectual property and other confidential 

availability of data, a program, a system, or information.... Motorola has 

merely alleged that the Defendants downloaded, uploaded and 

transferred valuable Motorola proprietary trade secrets and confidential 

information for their own benefit by and through nonsecure means into a 

nonsecure environment, thereby impairing the integrity and/or 

availability of such information. (Amended Compl., ¶¶53, 77, 90) Not 

only are these allegations insufficient as a matter of fact, they are also 

insufficient as a matter of law as the Northern District has held in several 

cases that similar allegations were insufficient to establish damages 

under the CFAA. 

See Mem., No. 08 C 5427, Dkt. # 57 at 10-11. The district court agreed that “[t]he only harm 

Motorola has alleged is the disclosure to a competitor of its trade secrets and other confidential 

information.” Mem. Op., No. 08 C 5427, Dkt. # 75, at 14 (Kennelly, J.).

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information stored on the computers. As Lemko itself repeatedly states, the underlying complaint 

must be read as a whole in order to assess its true nature, no matter the labels used to characterize 

the allegations. American Family Mut. Ins. Co. v. Roth, 886 N.E.2d 1149, 1156 (Ill App. Ct. 

2008). There is no way to fairly read the Motorola complaint as seeking relief for loss of use 

computer equipment; the allegations of theft and repurposing of the electronic data comprising 

proprietary trade secrets and confidential information is the basis for every claim.

There is a second substantial reason that the coverage for property damage under the 

CGL policies does not give rise to a duty to defend. Even were there some plausible, if 

negligible, “impairment” of Motorola computers alleged, it was not caused by an “occurrence” 

as that term is defined in those policies. An “occurrence” is an accident. Under Illinois law, “for 

purposes of insurance coverage claims, an accident is an unforseen occurrence, usually an 

undesigned sudden or unexpected event of an inflictive or unfortunate character.” West American 

Ins. Co. v. Midwest Open MRI, Inc., 989 N.E.2d 252, 260 (Ill. App. Ct. 2013) (internal quotation 

marks and citations omitted). The focus must be on whether the injury is expected or intended by 

the insured, not whether the acts were performed intentionally. See id. Lemko believes that this 

latter qualification saves its claim, arguing that the Motorola complaint alleges intentional acts 

but not the intentional infliction of particular injury upon Motorola. Here, however, there is no 

way to meaningful distinguish between the intentional acts—stealing—and the injury—loss. The 

natural and ordinary consequences of an act do not constitute an accident under an insurance 

policy. Milwaukee Mut. Ins. Co. v. J. P. Larsen, Inc., 956 N.E.2d 524, 531 (Ill. App. Ct. 2011);

Stoneridge Development Co. v. Essex Ins. Co., 382 Ill. App. 3d 731, 751, 888 N.E.2d 633, 652 

(2008) (even “if the person performing the act did not intend or expect the result, if the result is 

the rational and probable consequence of the act, or, stated differently, the natural and ordinary 

13
consequence of the act, it is not an accident.”). If a consequence is “not the rational and probable 

consequence of the intended act” but instead is “unintended and unexpected,” it is an “accident” 

and therefore an “occurrence.” Rich v. Principal Life Ins. Co., 226 Ill. 2d 359, 378–79, N.E.2d 

1082, 1094 (Ill. 2007). 

That is not this case. On the face of Motorola’s complaint, its losses from the 

misappropriation of trade secrets and confidential matter cannot be said to be “accidental” on the 

part of the insured.6 See West American, 989 N.E.2d at 260; Steadfast Ins. Co. v. Caremark Rx, 

Inc., 835 N.E.2d 890, 898-900 (Ill. App. Ct. 2005) (construing policy covering negligent acts). 

The complaint is replete with allegations that the Lemko defendants’ misconduct was knowing 

and intentional, and the supporting facts leave little room for an inference that the defendants 

could not have expected the injuries alleged to be the result of their actions. 

For the same reason, then, the CGL policy exclusions for “expected or intended injury”

also apply to the events underlying the Motorola complaint and bar coverage. This exclusion is 

for “property damage which may reasonably be expected to result from the intentional or 

criminal acts of the insured or which is in fact expected or intended by the insured, even if the 

injury or damage is of a different degree or type than actually expected or intended.” The 

Motorola complaint sounds in deliberate fraud and theft by the defendants by accessing 

Motorola’s confidential information and trade secrets and transferring it to Lemko, in violation 

of Motorola policy, the engineers’ employment agreements, and in at least one instance, criminal 

law. The italicized portion of the policy exclusion therefore applies, and this is an independent 

6 There is no material dispute in this case as to the identity of the “insured,” which 

comprises both Lemko and employees acting within the scope of their employment. Lemko does 

not argue that acts by the individual defendants are not intentional acts of Lemko; to the 

contrary, it seeks coverage for every named Motorola defendant. 

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basis to reject Lemko’s argument that the defendants owed a duty to defend based on allegations 

of property damage.

B. Advertising Injury Liability

As set forth above, both insurers’ policies cover “advertising injury” liability, similarly 

defined. The policy definitions are not identical, but they are not sufficiently distinguishable to 

warrant a different analysis; Lemko does make any argument based on particular wording in 

either policy that might merit different treatment.

Lemko argues that the Motorola complaint alleges an advertising injury based on 

copyright infringement. The insurers argue that coverage does not apply under the plain language 

of the policies; they also argue that three exclusions—for “knowing violation of rights of 

another,” for “breach of contract” and for “infringement”—preclude coverage.

Lemko states in its brief that its “advertising injury liability claim is based solely on the 

offense of infringement of Motorola’s copyright in Lemko’s advertisement.” Mem., Dkt. # 122 

at 10. That refers to paragraph (g) of the “offenses” that constitute advertising injury under the 

policy: “Infringing upon another’s copyright, trade dress or slogan in your ‘advertisement.’” 

Lemko primarily relies on two paragraphs of the Motorola complaint: 

Paragraph 137, in which Motorola alleges that “[o]n at least one 

occasion, the words ‘Copyright © 2001, Motorola, Inc.’ were removed 

from a Motorola source code file and the otherwise identical source code 

file was transferred to Lemko without the copyright notice and with an 

instruction that the attached files could be used to update Lemko code.” 

[and]

Paragraph 308, in which Motorola alleges that “Lemko has infringed and 

continues to infringe said copyright, by copying the copyrighted 

Motorola source code, removing Motorola’s copyright notice from the 

source code, and using the copyrighted source code as part of its own 

source code without Motorola’s permission to do so.”

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Mem., Dkt. # 122 at 11. Lemko also cites paragraphs of Motorola’s complaint that refer to

marketing activity or trade show appearances by Lemko defendants, at which they allegedly 

attempted to sell Lemko products that used Motorola’s proprietary trade secrets and confidential 

information. Motorola Compl., Case No. 08 C 5427, Dkt. # 473 ¶¶ 123.8, 124, 126, 127.7 Lemko 

therefore argues: “Broadly and liberally construing them as this Court must, these allegations 

sketch a claim that the copyrighted infringement of the Motorola source code relates to Lemko’s 

marketing and promotional dealings.”

Cincinnati retorts that the Motorola complaint does not claim that Lemko infringed 

Motorola’s copyright in an “advertisement” as defined by the policy—“a notice that is broadcast, 

telecast or published to the general public or specific market segments about your goods, 

products or services for the purpose of attracting customers or supporters,” including “a publicity 

article.” Cincinnati further invokes the “infringement” exclusion under the coverage for personal 

and advertising injury, which bars coverage for: “’personal and advertising injury’ arising out of 

the infringement of copyright, patent, trademark, trade secret or other intellectual property 

rights”; however, “this exclusion does not apply to infringement, in your ‘advertisement’, of 

copyright, trade dress, or slogan.” Cincinnati also invokes its exclusion for advertising injury 

“caused by or at the direction of the insured with the knowledge that the act would violate the 

rights of another and would inflict ‘personal and advertising injury’” and another exclusion for 

advertising injury “arising out of a breach of contract.”

The Court agrees with Cincinnati that the Motorola complaint does not allege that Lemko 

infringed its copyrights in any Lemko “advertisement.” It is true that the Motorola complaint 

7 At least some of the allegations in these paragraphs relate to conduct that occurred 

outside the insurers’ respective policy periods, but it is not necessary for the Court to parse out 

time-barred claims. 

16
asserts in general terms that Lemko used proprietary information it repurposed from Motorola in 

products that it marketed but that does not equate to “advertising” within the meaning of the 

policy. Motorola’s allegations pertain to the theft and use of the technology in Lemko products,

not in any “advertisement.” Advertising a product that, in turn, incorporates misappropriated or 

infringing content, is not the same as an advertisement that itself infringes a copyright by 

disclosing the copyrighted content. See, e.g., Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 

F.3d 1219, 1223 (9th Cir. 1996) (holding that “the advertising activities must cause the injury—

not merely expose it”); Winklevoss Consultants, Inc. v. Fed. Ins. Co., 991 F. Supp. 1014, 1033 

(N.D. Ill. 1998) (“Winklevoss imagines that its product demonstrations to potential clients must 

have revealed trade secret information—since Lynchval alleges that ‘mere use of the program 

would enable a competitor to much more quickly develop a competing product.’ But no 

wrongful disclosure allegations appear in the complaint.”). As Cincinnati argues, it would make 

no sense for Lemko, which hoped to profit from its use of the stolen information, to publish that 

proprietary information—primarily source code—to the public or any market segment, and, 

indeed, the Motorola complaint does not allege that that occurred. 

Lemko’s argument boils down to its contention that it cannot be ruled out, based on 

Motorola’s allegations, that at some unknown time or place, “Lemko represented that its source 

code was its own,” rather than stolen, copyrighted source code of Motorola. Mem., Dkt. # 113 at 

13. Speculative possibilities do not give rise to a duty to defend, see Amerisure Mut. Ins. Co. v. 

Microplastics, Inc., 622 F.3d 806, 808 (7th Cir. 2010), but in any case, Motorola does not allege 

that it was harmed by any such representation; instead, its injuries stem from the 

misappropriation and infringement itself. Lemko may have misrepresented the provenance of the 

source code when “marketing” its products, but it did not publish the proprietary source code (or 

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any intellectual property or trade secrets) itself. Lemko therefore has no claim for advertising 

injury liability.8

Lemko fares no better with its claim of advertising injury liability coverage under the 

Federal policies, under which, “advertising injury” is defined as: injury, other than bodily injury, 

property damage or personal injury, sustained by a person or organization and caused by an 

offense of infringing, in that particular part of your advertisement about your goods, products or 

services, upon their: copyrighted advertisement; or registered collective mark, registered service

mark or other registered trademarked name, slogan, symbol or title.” Advertisement is defined in 

the policy as “an electronic, oral, written or other notice, about goods, products or services, 

designed for the specific purpose of attracting the general public or a specific market segment to 

use such goods, products or services.”

Thus, the Federal policy did not trigger a duty to defendant based on advertising injury. 

Moreover, Federal too establishes that its exclusion for “expected or intended injury” bars 

coverage. The exclusion applies to property damage or advertising injury arising out of an 

offense, committed by or on behalf of the insured, that was “intended by the insured; or would be 

expected from the standpoint of a reasonable person in the circumstances of the insured” to cause 

the property damage or advertising injury. Just as the parallel Cincinnati exclusion applied, so 

too does Federal’s.9

8 Even if such a claim could be gleaned from the Motorola complaint, coverage likely 

would have been barred by one or more of the policy exclusions that Cincinnati relies upon. The 

exclusions for “knowing violation of another’s rights” and for “intellectual property” violations 

appear particularly apt, but the Court need not decide the issue absent an arguable “advertising 

injury” to begin with. 

9 Federal also has an intellectual property exclusion to its CGL coverage for property 

damage and advertising injury “in any way related to any actual or alleged: assertion; or 

infringement or violation by any person or organization (including any insured) of any 

intellectual property law or right, regardless of whether this insurance would otherwise apply to 

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C. Wrongful Acts Liability

Finally, Federal alone covered Lemko and various individual insureds under a D&O 

policy for injuries caused by certain wrongful acts of corporate representatives (who included 

both executives and employees). Lemko argues that the Motorola complaint alleges a broad array 

of “wrongful acts” so as to trigger coverage under the D & O policy. Federal argues that the 

intellectual property exclusions in the D & O policy bar any coverage for liability arising from 

the Motorola lawsuit. Comparing the policy language with the Motorola complaint, the Court has 

little difficulty concluding that the exclusion applies and bars coverage. 

The exclusion for intellectual property is quite broad. It excludes liability coverage for 

claims “based upon, arising from, or in consequence of any actual or alleged infringement of

copyright, patent, trademark, trade name, trade dress, service mark or misappropriation of ideas 

or trade secrets.” Lemko contends that several claims from the Motorola complaint—for 

usurpation of corporate opportunity, tortious interference, and civil conspiracy, see Mem., Dkt. 

# 93 at 10-11—cannot reasonably be said to fall within this exclusion,10 but each of those counts

in the Motorola complaint sets forth a theory of liability “based upon” or “arising from” the core 

factual allegations of misappropriation of proprietary trade secrets and confidential information. 

See Citizens Ins. Co. of Am. v. Uncommon, LLC, 812 F. Supp. 2d 905, 910 (N.D. Ill. 2011)

(holding that IP exclusion cannot be avoided “by the mere fact that unfair competition, deceptive 

all or part of any such actual or alleged injury or damage in the absence of any such actual or 

alleged assertion, infringement or violation.” The exclusion applies unless the injury “ is caused 

by an offense described in the definition of advertising injury; and does not arise out of, give 

rise to or in any way relate to any actual or alleged assertion, infringement or violation of any 

intellectual property law or right, other than one described in the definition of advertising 

injury.” Federal relies on this exclusion, too, but the Court does not address it, having already 

concluded that there was no coverage for advertising injury under the facts as alleged in 

Motorola complaint. 

10 Lemko does not argue that any other claims or conduct asserted in the Motorola 

complaint fall outside the IP exclusion.

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trade practices, tortious interference, and unjust enrichment claims, as a general matter, can and 

usually do arise from conduct having nothing to do with trademark infringement”). Any claims 

brought under a nominally non-IP legal theory are covered by the exclusion if the claim would 

not have arisen but for the IP claims. Id.; see Nautilus Ins. Co. v. 1452-4 N. Milwaukee Avenue, 

LLC, 62 F.3d 818, 822 (7th Cir. 2009) (holding, under Illinois law, that even if independent legal 

claims arise from separate duties, an insurance policy exclusion applies to any “intertwined 

claims” that do not cause “separate or independent compensable injury”). Taking Lemko’s 

reliance on the usurpation claim for example, Lemko’s insistence that the alleged “attempt to 

status up and operate Lemko as a competitor and usurp certain business opportunities,” (Mem., 

Dkt. # 93 at 11) as alleged in the purportedly independent claims (usurpation, tortious 

interference, civil conspiracy, and CFAA), is in fact directly contingent on the misappropriation 

of Motorola’s technology. According to Motorola’s complaint, it was the misappropriation that 

even allowed for the development of competing Lemko products.

To the extent that Lemko bases its argument on the premise that “confidential 

information” means something different than “trade secrets,” and therefore falls outside of the IP 

exclusion, the distinction is not convincing. The TAC expressly alleges that “the Motorola 

proprietary trade secrets and confidential information” described in the complaint “are statutory 

‘trade secrets’ protected by the Illinois Trade Secrets Act.” TAC ¶ 148. Thus, Lemko’s effort to 

premise a duty to defend on a claim that the TAC alleges misappropriation of merely 

confidential information is completely at odds with the express allegations of the TAC. In any 

event, the IP exclusion applies to “misappropriation of ideas or trade secrets,” and the Motorola 

complaint’s internal definition of “confidential information” fits comfortably within the scope of 

that broad phrase. See TAC ¶¶ 37-47 (defining terms and describing steps taken to keep 

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“confidential information” secret). While Lemko chastises Federal for failing to distinguish 

between trade secrets and information that is merely confidential, it commits the more egregious 

sin in ignoring the concept of misappropriation of “ideas” altogether, failing to offer any 

argument at all as to why a policy provision that excludes claims for the misappropriation of 

ideas does not easily encompass any taking of intellectual property or other proprietary 

information.

Instead, Lemko attempts to tease out of every count of the Motorola complaint a theory 

of relief that could apply even without the alleged theft of proprietary information constituting 

“trade secrets.” See Mem., Dkt. # 108 and 4-5. Even putting aside the fact that it ignores the 

breadth of the policy exclusion, this exercise is futile; the complaint premises each count on the 

same core factual allegations that include the misappropriation of ideas and trade secrets, so 

there are no claims that are not “based on” or “arising from” the misappropriation, and Lemko 

does not show that Motorola alleged any injury independent of the misappropriation. See 1452-4

N. Milwaukee Avenue, LLC, 62 F.3d at 822.

D. Bad Faith

In Counts IV and V of its complaint, Lemko alleges bad faith against the insurers for 

failing to appropriately investigate Lemko’s claim for coverage and interpreting their policy 

language unreasonably and erroneously. Compl., Dkt. # 1-2 at 10-12. The bad-faith cause of 

action is a creation of the Illinois Insurance Code, 215 ILCS 5/155, which allows for attorney’s 

fees and statutory damages where an insurer’s defense or delay in settling is “vexatious and 

unreasonable.” Based on Illinois case law, the Seventh Circuit has defined four instances in 

which an insurer’s conduct is not vexatious and unreasonable: (1) “there is a bona fide dispute 

concerning the scope and application of insurance coverage”; (2) “the insurer asserts a legitimate 

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policy defense”; (3) “the claim presents a genuine legal or factual issue regarding coverage”; or 

(4) “the insurer takes a reasonable legal position on an unsettled issue of law.” Citizens First 

Nat’l Bank of Princeton v. Cincinnati Ins. Co., 200 F.3d 1102, 1110 (7th Cir. 2000) (citation 

omitted). In short, claims under § 155 cannot be successful if there is no coverage, or even if 

there is a bona fide dispute about whether coverage exists. In this case, given the Court’s ruling 

on the merits of the insurers’ duty-to-defend arguments, which were communicated to Lemko by 

letter before this lawsuit, the Court must conclude that as a matter of law there was at least a

bona fide dispute over coverage. Therefore, judgment is proper for the defendants on Lemko’s 

§ 155 claims and there should be no penalties or shifting of fees pursuant to that statute. 

***

For the foregoing reasons, the Court denies Lemko’s motions for partial summary 

judgment and grants the defendant insurers’ motions for summary judgment. The insurers had no 

duty to defend and did not act in bad faith. Accordingly, judgment will be entered against the 

plaintiff and in favor of the defendants on all counts of the complaint. 

Date: September 30, 2014 John J. Tharp, Jr.

United States District Judge

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