Uh-oh: Cox Cable's insurer won't back them in court against BMG Music

BMG Rights Management and Round Hill Music. has been trying to enlist Cox Cable as an accomplice in a copyright trolling scheme, demanding that the company pass on copyright infringement notices that accuse users of downloading music and order them to pay large sums of music or face punishing lawsuits.

To Cox's credit, they've refused to participate in the scheme and have gone to court to fight for their subscribers, saying that the DMCA does not require them to assist in what amounts to an intimidation and blackmail scheme.

But the music companies scored a huge win in landing the case in the courtroom of an entertainment-industry friendly judge, who has ruled that the DMCA's "safe harbor" clause does not protect Cox, giving BMG and Round Hill standing to press their case. Whatever the outcome, it's certain to be appealed, because the withdrawal of safe harbor status from ISPs exposes every carrier, cable operator and wireless company to effectively unlimited damages, and would end the Internet as we know it in America if it were allowed to stand.

But any appeal depends on Cox staying the distance in court, refusing to settle, and for that, they need to spend millions on legal fees.

That's where bad turns worse: Cox carries litigation insurance from Lloyds of London, underwritten by Beazley, and Lloyds and Beazley have asked a judge to allow them to walk away from Cox's litigation. That say that since the threatening letters that BMG/Round Hill sent at the start of this campaign told Cox that they planned to ask a judge to strike down safe harbor protection, that Cox was reckless and assumed this liability of its own accord.

This is a terrible argument. Every piece of civil litigation, at root, looks like this:

"I think you're liable for X because of my legal theory, which is Y."

"I think your legal theory is bullshit, because of Z."

"I'll see you in court!"

Cox's insurers are arguing that once your opponent advances a legal theory, you must capitulate, even if you think that theory is bullshit.

What's worse, though, is what effect this will have on other ISPs. If insurers are able to walk away from their clients once the entertainment industry threatens them, we can expect every ISP in America to fold at the first threat.

In the complaint Beazley states that Cox was well aware of the potential liabilities. Rightscorp, the company that sends the copyright infringement notices, had already warned the ISP over its precarious position several years ago.

"By letter dated January 9, 2012, Cox was advised by an agent of copyright holders that if it did not forward those notices to its customers, it would be exposed to claims of contributory and vicarious copyright infringement," the insurer writes.

Cox, however, refused to forward the millions of notices as they were bundled with settlement demands, which are seen by some as extortion. This refusal eventually lead to the lawsuit filed by music rights companies BMG and Round Hill.

"Cox continued to intentionally ignore the notices and did not forward them to its customers," the complaint notes.