E.piphany, Inc. v. St. Paul Fire & Marine Ins. Co., ___ F. Supp. 2d ___, 2008 WL 5396889 (N.D. Cal. Dec. 16, 2008)
Analyzing implicit disparagement claims court noted,
At least one other jurisdiction has specifically addressed the issue of whether disparagement coverage can be triggered when a policy holder was not alleged to have disparaged a specifically identified product or business. See Knoll Pharmaceutical Co. v. Automobile Ins. Co. of Hartford, 152 F.Supp.2d 1026, 1037-38 (N.D.Ill.2001) (applying Illinois law). . . . In the litigation underlying the insurance coverage dispute in Knoll, the plaintiffs alleged that the policyholder had advertised its thyroid drug as “more effective than or superior to the other drugs available to treat hyperthyroidism” and had wrongly claimed that its drug was “not bioequivalent to competing products,” thereby disparaging competing manufacturers. Id. at 1036. Although the complaint in the underlying litigation did not allege disparagement of any specific competitors or products, the court in Knoll found a duty to defend because allegations of statements that the policyholder's drug was superior to other drugs were “disparaging in that they criticize the quality of other companies' ... products as being inferior.” Id. at 1038.
Id. at *5.
In finding disparagement by implication in E.piphany, the court noted that statements made by the insured that were allegedly false, it was the “only” producer of “all Java” “fully J2EE” software
solutions which was an “important differentiator” between competing products, even though some competitors offered products for these exact features was disparaging of one principal competitor, Sigma, who did not purport to have such capabilities.
The Court reasoned,
The gravamen of the Underlying Complaint, therefore, is that Plaintiff made false claims about the superiority of its own products, which clearly and necessarily implied the inferiority of Sigma's competing products, resulting in damages to Sigma.
Id. at *6.
