Insurer Has No Duty to Defend Trademark Infringement Claims Per Ninth Circuit

On June 10, 2014, the U.S. Court of Appeals for the Ninth Circuit issued a published opinion in Street Surfing, LLC v. Great American E&S Ins. Co., — F.3d —, 2014 WL 2576448 (9th Cir. 2014) addressing an insurance company’s duty to defend an insured in an intellectual property infringement action.  The trial court granted the insurance company’s motion for summary judgment on the ground that the “prior publication exception” applied to the claim.  The appellate court upheld the trial court’s ruling.  The court found that although the allegations in the underlying complaint  may have triggered the insurance company’s duty to defend for use of another’s advertising idea, the prior publication exception applied to the claim and relieved the insurance company of its duty.  The court also rejected the insured’s argument that the underlying complaint was covered under the “slogan infringement” provision.

The case concerned an insured that was sued in an underlying action for trademark infringement, unfair competition and unfair business practices under federal and California law.  The insured tendered a claim for a defense of the underlying action under its commercial general liability (CGL) that covered, among other things, liability for personal and advertising injury.  The coverage available under the policy was limited by a number of exclusions including a “prior publication exclusion,” which disclaimed coverage for “‘[p]ersonal and advertising injury’ arising out of oral or written publication of material whose first publication took place before the beginning of the policy period.”

The insured began selling a two-wheeled inline skateboard in December 2004, and affixed the allegedly infringing logo to the skateboard.  In August 2005, the insured applied for a CGL and disclosed its website address and logo among other things.  The insurance company issued two CGL policies to the insured that provided coverage from August 2005 through September 2007.  In June 2008, a third party sued the insured for trademark infringement, unfair competition, and unfair trade practices.  The insured knew of the potential trademark issue since early 2005, and unsuccessfully attempted to purchase the trademark during that period.  In September 2008, the insured submitted a claim for coverage to the insurance company and tendered the underlying complaint.  The insurance company denied the insured claims, citing the intellectual property exclusion and advertising injury endorsement.  The denial letter did not, however, cite the prior publication provision in the policy, but did state that the insurance company reserved any and all rights available under the policy.

Following the denial, the insured settled the underlying action with the third party and commenced suit against the insurance company.  The parties’ filed competing motions for summary judgment on the issue of whether the insurance company had a duty to defend the insured in the underlying case.  The district court found in favor of the insurance company on the basis of the prior publication exclusion.  The insured appealed.

The appellate court upheld the trial court’s decision, finding that the prior publication exclusion relieved the insurance company of its duty to defend.  The Court of Appeals reasoned that there was no duty to defend because the extrinsic evidence that was available to the insurance company at the time of the tender conclusively established (1) that the insured published at least one advertisement using the allegedly infringing trademark before insurance coverage commenced, and (2) the advertisements that the insured used after coverage commenced were substantially similar to the pre-coverage advertisement.  The court began by summarizing application of the prior publication exclusion, which first requires proof that the allegedly wrongful advertisement was published prior to coverage period.  Under California law, once that threshold showing is made, the exclusion “bars coverage of injuries arising out of republication of that advertisement, or any substantially similar advertisement, during the policy period, because such later publications are part of a single, continuing wrong that began before the insurance policy went into effect.”  If the later advertisement is not substantially similar, however, it constitutes a distinct or “fresh” wrong that does not fall within the scope of the exclusion.  The Court of Appeals determined that the extrinsic evidence—particularly, admissions in the insurance application and the fact that the insured’s logo was placed on the products—satisfied the threshold requirement of prior publication in an “advertisement” as the term is used in the policy.  Further, the court found that the insured’s advertisements during the coverage period were substantially similar and, thus, barred from coverage under California law.

The court also rejected the insured’s contention that the advertisements fell within the policy’s “slogan infringement” coverage provision, which covered liability for “infringing upon another’s … slogan in [the insured’s] advertisement.”  In so ruling, the court found that the advertisement run by the insured did not satisfy the definition of a “slogan” as that term has been interpreted under California law.  Specifically, the court found that there was no evidence or allegation that would support the conclusion that the third party used the allegedly infringing as a slogan and that, under the terms of the policy, the insured’s own use of the purported slogan was irrelevant.

The lawyers at Maloney Lauersdorf Reiner frequently advise clients regarding duty to defend issues.  Please do not hesitate to contact us with any questions or concerns regarding this case or any other matter you see on the Insurance Coverage Blog.

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