Prospects Brighten In Three Key Jurisdictions For Policyholders In Securing Insurance Coverage For Intellectual Property Lawsuits
(CALIFORNIA/OHIO/TEXAS)
CALIFORNIA
New case law makes the applicability of California coverage law more likely in a number of circumstances.
First, California will rarely recognize the conflict of interests unless the policy issues behind the distinct rule would necessarily create a different result.
Western Int’l Syndication Corp. v. Gulf Ins. Co., 222 Fed.Appx. 589, 594, (9th Cir. (Cal.) 2007).
Second, California coverage law will apply if a conflict of law arises where the underlying suit is in California, as this is the place of performance.
Frontier Oil Corp. v. RLI Ins. Co., 153 Cal. App. 4th 1436, 1461 (Cal. Ct. App. (2d Dist.) 2007)
Third, recent case authority clarifies the right to independent counsel in California. In typical scenarios encountered by litigants in intellectual property disputes, an insurer that asserts an “expected and intended” conduct and knowledge of falsity the “first publication exclusion” creates a conflict entitling the insured to retain independent counsel at the insurer’s expense.
J.R. Marketing, LLC v. Hartford Casualty Ins. Co., 2007 WL 4217443 at *8 (Cal. Ct. App. (1 Dist.) November 30, 2007)
Fourth, recovery of defense fees precipitated by pursuit of intellectual property lawsuits may elicit counterclaims, which are themselves covered, thereby funding the cost of affirmative litigation.
Aurafin-OroAmerica, LLC v. Federal Ins. Co., 2006 WL 1880088 (9th Cir. (Cal.) June 26, 2006)
Adobe Systems, Inc. v. St. Paul Fire & Marine Ins. Co., No. C 07-00385 JSW, 2007 WL 3256492, *9 (N.D. Cal. Nov. 5, 2007)
Fifth, California recently expanded the “genuine dispute doctrine” to permit an award of bad faith damages for reasonable attorney’s fees expended in proving coverage only where insurers withheld benefits.
Wilson v. 21st Century Ins. Co., 42 Cal.4th 713 (Cal. 2007) (“In the insurance bad faith context, a coverage dispute is not ‘legitimate’ unless it is founded on a basis that is reasonable under all the circumstances.”)
In a trio of recent decisions, Ohio Courts have broadly defined the scope of “advertising injury” coverage in relation to claims for trademark and copyright infringement coverage. These cases abandon the narrow focus on reading the breadth of “advertising” injury coverage for offenses of “misappropriation of advertising ideas or style of doing business” (1986 CGL ISO) and its successor “use of another’s advertising idea in your ‘advertisement’” (1998 CGL ISO).
These courts found that these offenses encompass a range of unfair competition claims, including forms of false advertising, false designation of origin, as well as trade dress and trademark infringement claims.
AMCO Ins. Co. v. Lauren-Spencer, Inc., 500 F. Supp. 2d 721, *733 (S.D. Ohio (E.D.) 2007) (Copyright/Trade dress infringement)
Westfield Ins. Co. v. Factfinder Marketing Research, Inc., 168 Ohio App. 3d 391, 401, 860 N.E.2d 145 (Ohio Ct. App. (1st Dist.) 2006) (Trade dress case)
Ohio Discount Merchandise, Inc. v. Westfield Ins. Co., No. 2006CA00059, 2006 WL 2773245, *5 (Ohio App. (5 Dist.) 2006) (Copyright infringement)
TEXAS
The Texas Supreme Court clarified that “advertising injury” and “personal injury” coverage cases, like those for “bodily injury” and “property damage”, are subject to the notice/ prejudice rule, placing the burden on the insurer to prove that late notice created prejudice before eliminating possible coverage.
PAJ, Inc. v. Hanover Ins. Co., – - S.W.3d – – , 2008 WL 109071 (Tex., 2008) (Trademark infringement)
In another seminal decision, the Texas Supreme Court, on rehearing, three years after its earlier opinion, reaffirmed the rule that an insurer that paid a settlement could not seek reimbursement of monies paid (absent an agreement to permit such reimbursement) should it be determined that it had no duty to cover its insured. Implicit in this analysis (which depended on the absence of the word reimbursement that was not in the policy) is the rule that defense fees paid are also not subject to reimbursement.
Excess Underwriters at Lloyds, London v. Frank Casing’s Crew & Rental Tools, ___ S.W. 3d ___, 2008 WL 274878, (Tex., February 01, 2008)
Taken together, these cases offer opportunities to revisit improper declinations of coverage under California, Ohio or Texas law.
Where “advertising injury” coverage is typically issued on an “occurrence” basis, and the alleged wrongful acts for which coverage is denied, may go back a number of years, the potential defense fee recovery available to policy holders who pursue “buried treasure” by unearthing improper late notice/independent counsel denials could be significant.
