Ohio Justices Obviously Do Not Have an Electrical Engineering Degree When They Rule Software Cannot Have a Physical Presence

“If software does not physically exist, is it metaphysical?” That was my thought while reading a recent opinion by the Supreme Court of Ohio¹ explaining why coverage did not exist when computer software was subject to a ransomware attack. Here is the holding:

Computer software cannot experience ‘direct physical loss or physical damage’ because it does not have a physical existence….Software is essentially nothing more than a set of instructions that a computer follows to perform specific tasks. Fantasy Sports Properties, Inc. v. Sportsline.com, Inc., 287 F.3d 1108, 1118 (Fed.Cir.2022) (‘Software is a set of instructions, known as code, that directs a computer to perform specified functions or operations’). It is information stored on a computer or other electronic medium…While a computer or other electronic medium has physical electronic components that are tangible in nature, the information stored there has no physical presence….In other words, the information—the software—is entirely intangible. Focusing on what the parties would have intended, see Alexander, 53 Ohio St.2d at 246, 374 N.E.2d 146, we are unpersuaded that the policy covered ‘physical damage’ to computer software (an intangible) without there also being physical damage to the hardware on which the software was stored.

Because the insurance policy at issue did not cover the type of loss EMOI experienced, Owners did not breach its contract with EMOI. Accordingly, we reverse the judgment of the Second District Court of Appeals and reinstate the trial court’s grant of summary judgment in favor of Owners on EMOI’s claim of breach of contract and bad-faith denial of insurance coverage.

I can remember typing code onto IBM cards. I guess the cards, if burned, would be covered but not the value of the holes. Later, my code was electric in nature and existed in bits and bytes in electronic format. Now, these judges are trying to convince me that the code is intangible when I know I can still tangibly change it by making physical, electrical changes on media.

I have to accept the panel’s decision as a lawyer, but I will never agree with the reasoning because it is scientifically wrong. Software has a tangible physical presence, and judges telling us the opposite, live in a made-up universe that is not ours.

The lesson for policyholders is to buy special cyber insurance from your property insurance carrier to avoid any question about coverage.

Thought For The Day

Man is still the most extraordinary computer of all.
—John F. Kennedy
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¹ EMOI Services v. Owners Ins. Co., Slip Opinion 2022-Ohio-4649 (Ohio Dec. 27, 2022).