Whether the insurer was obligated to indemnify its insured for potential liability under a contractual indemnity provision was at issue in Farmers Ins. Exchange v. RNK, Inc., 2011 U.S. App. LEXIS 1255 (1st Cir. Jan. 21, 2011).

   RNK, a telephone company, and Ripple, a company providing conference services including chat lines, entered an Agreement in 1999.  RNK agreed that Ripple would install at RNK's premises electronic equipment necessary for Ripple to provide conferencing services to its customers.  In order for Ripple's chat lines to function, a call had to travel over RNK's network and through Ripple's hardware and software.  Under paragraph three of the Agreement, Ripple would "indemnify RNK and hold harmless from and against all damage claims associated with any equipment of Ripple."  Paragraph ten provided Ripple would indemnify RNK from claims arising from all "marketing" and "content."

   In 1998, the New York Public Service Commission issued an order addressing the blocking of chat lines.  The purpose of the order was to protect minors by providing end-users the ability to block the completion of telephonic communications.  RNK never complied with implementing the regulatory order.

   In 2005, Jane Doe sued RNK, alleging it failed to comply with the regulatory order by not assigning blockable telephone numbers to chat lines.  As a result, she was improperly able to gain access to a chat line through which she met several individuals who eventually sexually assaulted her. 

   RNK's insurer settled the Doe Lawsuit and then, in the name of RNK, sought indemnity from Ripple and Ripple's insurer, Farmers.  RNK argued the Agreement required indemnification from the claims asserted in the Doe Lawsuit.

   Farmers filed for a declaratory judgment against both Ripple and RNK, seeking a ruling that it had no duty to defend or indemnify RNK in the Doe Lawsuit.  The district court denied RNK's motion for summary judgment and granted Farmers and Ripple's motion for summary judgment.

   The First Circuit affirmed.  The Doe Lawsuit alleged that RNK's tortious failure in violation of the regulatory order to assign blockable codes to the chat lines was the proximate cause of her damages.  RNK contended that this claim was covered under paragraphs three's indemnification obligation.  RNK argued Doe's claim was associated with Ripple's "equipment" because the chatline would have never operated without Ripple's equipment, and, without the chat line, the Doe Lawsuit would have never arisen.  The First Circuit found it was unreasonable to find that paragraph three required Ripple to indemnify RNK against all claims that could somehow be traced back to the existence of Ripple's chatlines.  Instead, the indemnification obligation related to claims specifically caused by Ripple's tangible equipment located in RNK's premises. 

   RNK also sought indemnification under paragraph ten of the Agreement.  It was clear, however, that the purpose of paragraph ten was to protect RNK from possible unlawful conduct by Ripple.  Ripple did not agree under paragraph ten to indemnify RNK for claims arising from conversations of third party customers that Ripple did not generate and could not monitor.  

  Accordingly, Ripple had no indemnification obligations under the Agreement and Farmers' obligations under Ripple's policy were not triggered.