California: An Insurance: Insurer Overview

Not often do insurance lawyers get to study US Supreme Court precedent for its impact on coverage. But they sure are taking note of the recent decision in Cox Commc’ns, Inc. v. Sony Music Ent., 146 S. Ct. 959 (2026). That decision largely eviscerates Internet Service Provider (ISP) exposure to large-scale copyright litigation, holding that ISPs cannot be liable for contributory infringement for the acts of their users unless they intend that their services be used for infringement. For Cox Communications, it eliminated a USD1 billion judgment.

Aside from the massive impact on underwriting ISP risk, it highlights an important question: if ISPs can only be liable for copyright infringement when they intend their users to infringe, can there ever be coverage for this liability?

Background

Sony and other movie and music copyright holders sued Cox Communications, an ISP, because its users were downloading and sharing movies and songs without permission via their Internet using protocols such as BitTorrent. Sony sought to enforce its copyrights against Cox – rather than the individual violators – as the entity with the ability to pay a judgment and in an effort to enforce copyrights on a broader scale.

However, the standard for proving secondary infringement is naturally much higher than direct infringement: it would not normally be fair to charge ISPs for the acts of their users. Just as the courts would not normally charge platforms like X for the tweets of their users.

The Supreme Court has delineated two paths of permitting secondary infringement claims against ISPs: contributory and vicarious infringement:

• Contributory infringement applies when a party, with knowledge of infringing activity, induces, causes, or materially contributes to the infringement of another.
• Vicarious infringement applies when a party has the right and ability to supervise the infringing activity and derives a direct financial benefit from it.

A Virginia federal jury had awarded Sony and other copyright holders USD1 billion in their copyright infringement suit against Cox. On appeal, the Fourth Circuit affirmed the contributory liability finding but reversed the vicarious liability determination, concluding that Cox did not receive a direct financial benefit from its subscribers’ infringement. The appellate court ordered a retrial on damages for contributory infringement. The case was then appealed to the Supreme Court, before that retrial occurred.

The Supreme Court granted certiorari to address only the contributory infringement claim, as the vicarious infringement claim had already been dismissed. Cox argued that the District Court had given the jury an overbroad instruction that permitted a finding of contribution with only a general knowledge that the infringement was occurring.

The Supreme Court’s Finding

The Supreme Court held 9-0 that “[t]he provider of a service is contributorily liable for the user’s infringement only if it intended that the provided service be used for infringement.” Id. at 967 (emphasis added). The Court emphasized that this holding reiterates many prior decisions stating more or less the same, citing, for example, Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005)).

The Court therefore reversed the Fourth Circuit decision upholding the contributory infringement verdict and remanded for further proceedings consistent therewith. As the Fourth Circuit had already reversed the jury’s vicarious infringement verdict, the case against Cox is over.

This was a very positive result for Cox and other ISPs, who argued they had been sued unjustly for the acts of others. They could not be held responsible for policing the internet.

It remains to be seen whether copyright holders will abandon their pursuit of ISPs and shift focus to individual infringers or devise alternative strategies. In the wake of this decision, Universal Music Group, Sony, and Warner Music Group dropped their piracy lawsuit against Verizon in the US District Court for the Southern District of New York  – choosing to dismiss the case with prejudice, without a settlement, because the legal basis for suing ISPs had been so dismantled by the high court. No further legal path appears viable.

Coverage Implications

While great for ISPs on liability, the decision also highlights significant questions on coverage. Intentional torts are generally not covered, under Insurance Code Section 533 and a host of other policy provisions and doctrines. Given the many millions of dollars spent defending and settling secondary copyright infringement claims against ISPs, coverage lawyers will take note.

The Court described clearly the level of intent required to hold ISPs liable:

• “The provider of a service is contributorily liable for the user’s infringement only if it intended that the provided service be used for infringement.”
• “This Court has repeatedly made clear that mere knowledge that a service will be used to infringe is insufficient to establish the required intent to infringe.” The Court frequently relied on prior precedent as if to leave no doubt that it was not making new law but rather reiterating the law that was already there.
• “[C]ontributory liability cannot rest only on a provider’s knowledge of infringement and insufficient action to prevent it.” An ISP who knows of infringing activity and ignores it is not liable for contributory infringement.

The Court’s decision therefore strengthens arguments that intentional act exclusions preclude coverage for contributory infringement.

Given that an ISP can only be held liable for contributory infringement if it provides internet service with the “inten[tion] that the provided service be used for infringement,” this standard seems to require an intentional violation of the law. Contributory infringement is an intentional tort not appropriate for coverage.

While there is no clear precedent finding no coverage for contributory copyright infringement, it appears to be the logical extension of the Cox decision. The closest favorable decision comes from a Pennsylvania Court of Appeal. In Transcore, LP v. Caliber One Indem. Co., 972 A.2d 1205 (P.A. Super. 2009), the Court found that a secondary patent infringement claim was not covered: “[T]his is an action for inducing a third party to violate a patent, not a direct patent infringement action. Because that patent action can only be brought if the violation is knowing, and there is an exclusion in the policy for ‘knowing’ actions, there is no coverage for this action.”

Conclusion

ISPs may be free of future liability for contributory infringement under the Cox holding. However, to the extent that ISPs had previously settled their secondary infringement liability and are now seeking coverage, the finding in Cox (and the prior Supreme Court decisions on which it stands) gives rise to significant coverage challenges for their carriers.