The Ninth Circuit recently held in Sony v. American Home Assurance that Sony was not entitled to a defense from two of its carriers.  Sony was sued because its PlayStation 2s suffered from an "inherent" or "fundamental" design defect that rendered them unable to play DVDs and certain game discs.  Sony had a special $10 million media liability insurance policy from American International Specialty Lines Company that covered "negligent publication."  This term was undefined.  Upon review of the policy, the Ninth Circuit determined "the term refers to a narrow tort relating to defective advice and incitement, not a broad tort distinct from those terms."  The underlying complain did not allege Sony published material that led readers to engage in a harmful act and, accordingly, the underlying complaint was not covered by the policy.  A dissenting opinion would have construed this term in Sony’s favor, rationalizing that the term should be construed in light of its ordinary meaning and in favor of an insured.

Further, the Ninth Circuit determined that coverage cannot be created out of an exclusion, that is, exclusions "cannot expand the basic coverage granted in the insuring agreement."  Thus, language that was arguably favorable in an exclusion was irrelevant if there was no coverage under the affirmative coverage provisions.

Sony also had a $2 million general commercial insurance policy from American Home Assurance Company.  Sony argued the underlying complaint alleged both "loss of use of tangible property" and "physical injury to property" and thus Sony was entitled to coveage.  The Ninth Circuity determined that an exclusion applied, namely there was no coverage for loss of use arising out of "a defect, deficiency, inadequacy, or dangerous condition in [Sony’s] product."