Aearo Corp. v. American Int'l Specialty Lines Ins. Co., No. 1:08-cv-0604-DFH-DML, 2009 WL 5069013 (S.D. Ind. Dec. 17, 2009)
The trademark infringement lawsuit arising out of the suit by Climb Tech LLC against Aearo Corporation and Company for alleged wrongs arising out of Aearo’s distribution of Climb Tech’s fall protection products and other products that were similar to Climb Tech’s products.
AISLIC denied a defense. The court found that denial to be wrongful and concluded a duty to defend arose.
The underlying suit was brought by the claimant who was located in Texas in the United States District Court in Texas. The insured elected to sue the umbrella carrier, AISLIC, after the primary insurer, Liberty, denied a defense. The deceptive practice and unfair competition claims were based on the representation that Aearo “[‘expressly portrayed and represented [the infringing product] as an “enhanced version” of [Climb Tech's product], creating the false impression that the newer product comes from the same source as the earlier product.’]” Id. at *2.
According to the court, Climb Tech “further alleged that Aearo ‘confuses the consuming public by falsely claiming in its sales materials ... that Aearo/SafeWaze has “[t]he only removable/reusable anchor point for concrete applications,” accompanied by a picture of Climb Tech's expansion bolt device.’ ” Id. at *2.
Analyzing a 1986 ISO policy, the court rejected AISLIC’s argument that the word “solely” in its definition of advertising injury imposes a more rigorous requirement “on the insured, requiring ‘nothing less than a showing that the insured’s advertising be the ‘sole cause’ of the alleged injury’ . . . quoting Discover Financial Services LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, 527 F.Supp.2d 806, 820, 823 (N.D.Ill.2007).” Id. at *5.
The pertinent policy definition of advertising injury read, “injury arising out of your advertising activities as a result of one or more of the following offenses . . . .” Id. at *6.
Interpreting the word “solely” the court determined that the better reading of it was “if the insured successfully makes that showing for at least one particular claim, then the general rule applies and the insurer is obligated to defend the entire suit.” Id. at *5.
The court readily found that “misappropriation of advertising ideas” or “style of doing business” includes trademark infringement, citing Auto Owners Ins. Co. v. La Oasis, Inc., 2005 WL 1313684, at *7-9 (N.D. Ind. May 26, 2005); Fidelity & Guar. Ins. Co. v. Kocolene Marketing Corp., 2002 WL 977855, at *8-9 (S.D. Ind. March 26, 2002). Id. at *6. The Advance Watch approach was inconsistent with Indiana law citing Cincinnati Ins. Co. v. BACT Holdings, Inc., 723 N.E.2d 436, 439-40 (Ind. App. 2000) (ambiguities in policy language are “strictly construed against the insurer”). Id. at *6.
Trademark infringement claim fell within the offense of infringement of “title” citing Charter Oak Fire Ins. Co. v. Hedeen & Companies, 280 F.3d 730, 735-36 (7th Cir. 2002). Id. at *7.
Reading Erie Ins. Group v. Sear Corp., 102 F.3d 889, 894 (7th Cir. 1996) (applying Indiana law) with Discover Financial Services LLC analyzing a similar “arising solely out of” policy language the court determined that:
[U]nder the policy, the insured's activities promoting its goods or services must be the sole cause of the alleged injury that brings the underlying suit within the policy's coverage, though not the sole cause of all injuries alleged in the case.
Id. at *7.
Trademark infringement suit met that standard:
Climb Tech's trademark infringement claim satisfies that requirement. Without Aearo's advertising activities, Climb Tech would not have had a claim for relief under 15 U.S.C. § 1125(a), the federal trademark statute. . . . Climb Tech alleged instead that Aearo, before selling its infringing products, first marketed those products “through the same dealer network that previously resold” Climb Tech's products.
Id. at *7.
The court emphasized:
What is important here is not the mere use of the words “market” or “promote” but the fact that the only activities for which Aearo could possibly be held liable under § 1125(a) were advertising activities or followed directly from those advertising activities. . . . Even if Aearo had only “marketed” and “promoted” its infringing products using Climb Tech's trademark without making a single sale, it would still have been liable for trademark infringement. See CAT Internet Systems, Inc. v. Providence Washington Ins. Co., 153 F.Supp.2d 755, 762 (E.D.Pa.2001) (holding that trademark infringement was “caused by” advertising activities because the injury “was complete in the advertisement, requiring no further conduct”). . . .
Where the insured's advertising activities were the only activities alleged to give rise to an injury, and those activities were sufficient to give rise to the injury, then it is fair to say that the injury arose solely from those advertising activities.
Id. at *7-8.
As “Climb Tech could have recovered on its trademark infringement claims without proving that Aearo acted with knowledge of falsity,” the court found a duty to defend implicated. Id. at *8.
The fact that additional damages including punitive damages under Federal and Texas law were available, is of no moment in analyzing the duty to defend as such contentions were not proven.
Citing Orlando Nightclub Enterprises, Inc. v. James River Ins. Co., 2007 WL 4247875, at *8 (M.D.Fla. Nov.30, 2007) the court opined that:
Because the duty to defend is broader than the duty to indemnify, the insurer is thus required to defend the insured if the underlying lawsuit could succeed on any theory without proof of intentional conduct.
Id. at *8.
The Del Monte Fresh Produce N.A., Inc. v. Transportation Ins. Co., 500 F.3d 640 (7th Cir. (Ill.) 2007) court was distinguishable as it addressed claims of “known” fraud. The court also suggested that Del Monte was inconsistent with the court’s reasoning in Cincinnati Ins. Co. v. Eastern Atlantic Ins. Co., 260 F.3d 742, (7th Cir. 2001) by noting the issue was, “could the insurer arguably have been held liable on an otherwise covered claim without proof of intentional misconduct?” Id. at *9.
On the facts before it, the court found that liability could be established without proof of intentional conduct, therefore the exclusion did not bar a defense.
To the extent that AISLIC's cases hold that the knowledge of falsity exclusion applies whenever the complaint alleges intentional misconduct, regardless of the possibility of the insured's liability on a covered claim, they are unpersuasive as guides to Indiana law. . . . When the legal theories in the underlying complaint leave open the possibility of the insurer's duty to indemnify, the insurer's broader duty to defend is triggered and the knowledge of falsity exclusion does not apply.
Id. at *10.
The court rejected the argument that there was a brief of confidentiality and distribution agreements between Climb Tech and Aearo and that that was the genesis of asserted liability and thus the breach of contract laws precluded a defense.
As Judge Rodovich has explained, Indiana's courts have not spoken on this question. He predicted in a thoughtful opinion, however, that Indiana would follow the majority of other jurisdictions so that a breach of contract exclusion would apply only if the claim in question would not have existed but for the insured's alleged breach of contract.
Id. at *10.
The phrase “arising out of” meant “caused by” under applicable Indiana authority and thus the exclusion should be properly and narrowly construed.
In this sense, Aearo was able to infringe the trademark only because of its agreement with Climb Tech. . . . The trademark infringement claim, however, is based on a legal theory entirely different from a claim for breach of contract. Climb Tech's rights in its trademark, the rights on which it is able to sue for trademark infringement, came into being before any contract with Aearo was signed and were independent of any such contract. See Hugo Boss, 252 F.3d at 623 n. 15; J.P. Structures, 1997 WL 764498, at *4.
Id. at *11.
No further adjudication of any issues necessary since the insurer, having declined to defend and to participate in settlement, was bound the reasonable settlement made and attorneys’ fees incurred.
Under Indiana law, when an insurer denies coverage and refuses to defend its insured, it will be held liable for the costs of defense and settlement if it turns out to be wrong about its coverage obligations. See Frankenmuth Mutual Ins. Co. v. Williams, 690 N.E.2d 675 (Ind.1997); Employers Ins. of Wausau v. Recticel Foam Corp., 716 N.E.2d 1015 (Ind.App.1999).
Id. at *11.
