Gauntlett on Intellectual Property/Antritrust Insurance : Insurance Policyholder Advocate & Attorney David Gauntlett : Gauntlett Law Firm : Insurance Recovery, Policy Interpretation : Irvine, Orange County, California

In 2005, Hyundai Motor America (“Hyundai”) was sued for patent infringement by Orion IP, LLC (“Orion”) based on allegations that Hyundai’s website used Orion’s patented methods of generating customized product proposals.

Specifically, Orion alleged that Hyundai’s website used a “build your own vehicle” (“BYO”) feature and a parts catalogue feature. Hyundai sought a defense from its insurers, asserting that Orion’s claims constituted allegations of “misappropriation of advertising ideas,” which was covered under the standard “advertising injury” provisions of their policies. The insurers refused to defend Hyundai.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The suit alleged false and misleading advertising by ITI in the suit against it by 3M. The lawsuit asserted federal unfair competition violations under the Lanham Act, 15 U.S.C. § 125(a) and state unfair competition laws under the Minnesota Uniform Deceptive Trade Practices Act (“MDPTA”), Minn. Stat. § 325D.44.

The particular fact allegations follow: (a) ITI’s marketing brochures are false, misleading and deceptive because, among other reasons, the purported “Actual Photo” of 3M Tape does not in fact depict an actual photo but instead has been manipulated in a false and deceptive manner in order to depict 3M tape in an unfavorable way;(b) ITI’s product packaging is false, misleading, and deceptive because the purported “Actual Photo” of 3M Tape is misrepresented in order to depict 3M Tape in manner that is contrary to its typical use and effectiveness.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

This appeal arises out of a dispute between an insurance company and its insured regarding the insurer's duty to indemnify the insured for the settlement of an underlying litigation.

Mid-Continent Casualty Company (“Mid-Continent”) sued American Pride Building Company, LLC (“American Pride”) for declaratory judgment that it is not obligated to defend or indemnify American Pride against a copyright infringement claim by Groff Construction, Inc. (“Groff”).

The district court implicitly determined that Florida law controls Mid-Continent’s legal duties and obligations under its insurance policies and accordingly, applied Florida law throughout its dispositions, especially as neither party raised a conflict of law as a bar to potential coverage.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

There was no right by an insurer to demand arbitration under Civil Code § 2860(c) of a dispute as to its obligation to pay independent counsel where there had been no determination that the insurer had a duty to defend and the parties disputed whether the insured satisfied that duty consistent with its obligations under Civil Code section 2860.

Despite written request that it take a position as to whether it would permit independent counsel to serve under Civil Code § 2860 refused to do so, finding payment of defense costs was subsequently demanded nearly two years after the failure to initially respond to the demand for reimbursement of defense fees incurred.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In one of the few cases nationally to deal with indemnification of offense based coverage, the court found that it properly arose where the verdict was based on negligence for alleged defamatory actions. While Pharmacists, the insured, contends that Cooper had claimed that all of the defamatory statements were made with knowledge of their falsity or reckless disregard thereof, and Myer defended on the grounds that it did not make certain statements and another’s were true, the court found that the trial court “explicitly instructed the jury that the defamation claim involved two separate sets of statements – with separate and distinct burdens of proof and liability standards – the one requiring proof by a preponderance of the evidence of negligence, the other by clear and convincing evidence of knowledge or recklessness.” Id. at *3.

When viewed together, the instructions and special interrogatories leave no doubt that the jury was specifically directed to determine whether certain statements were made negligently, and it made that express finding. We find no basis to conclude that the jury might have harbored an intent or understanding of the issue markedly different from that plainly expressed in the special verdict.

Id. at *3.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court concluded that “[t]he CGL policies appear to provide coverage for injury resulting from some false statements made in advertisements, but do not cover injury caused by false statements an insured makes about its own products.” Id. at *1.

Broadly interpreting the “Quality or Performance of Goods–Failure to Conform to Statements” exclusion, the court found that in these circumstances, it barred a defense.

The court discerned that if allegations of injury from false statements were made about the claimant’s products then the exclusion would not necessarily preclude a defense. However, the court determined that because the only false statement was about the defendants’ own products, the exclusion applied to bar a defense.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The underlying complaint alleged that in March 2007 two competitors of Total Call International (“TCI”) – namely, IDT Telecom, Inc. and Union Telecard Alliance, LLC (collectively “IDT”) – sued TCI, alleging that they had suffered damages as the result of TCI’s advertising activities.

The insurer denied a defense, claiming that TCI’s advertising only misrepresented TCI’s own phone cards and did not disparage its competitors and that, moreover, coverage for “advertising injury” was barred from coverage by the “nonconformity” exclusion.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court analyzed a blast fax case, entering the fray, as a number of courts have, in evaluating whether this triggers an invasion of privacy, the question being whether intrusion upon seclusion is the form of privacy implicated. The operative language, a standard ISO form, provided, “ ‘[A]dvertising injury’ [included]: ‘. . . b. oral or written publication of material that violates a person’s right of privacy . . . .’ ” At issue was a case where a settlement of $19,520,000 arose for faxes sent from April 2, 2003 through January 30, 2007 as part of the settlement of a class action lawsuit against the Friedman Group International for violation of the TCPA, 27 U.S.C. § 227.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Addressing the right of Microsoft as judgment creditor to establish coverage under the policy of its insured pursuant to California Insurance Code § 11580(d)(2), the court found that the coverage was not properly established.

As a third party judgment creditor, Microsoft has the burden to establish that Hartford owed the EEE Defendants a duty to indemnify, not merely to defend. See Cal. Ins.Code § 11580(b)(2). As a non-insured, Microsoft has no standing to raise the duty to defend. . . . In addition, as a third party creditor, Microsoft is subject to the same coverage defenses available against the insured. See Cal. Ins.Code § 11580(2).

Id. at *5.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court found, affirming the trial court, that the first publication exclusion applied to bar potential coverage. The court specifically rejected arguments that the exclusion does not apply to a trademark infringement but is rather limited to libel, slander, and invasion of privacy claims. It also rejected the notion that the word “material” used in the policies’ definition of the “advertising injury” rendered the prior publication inapplicable to the trademark infringement claims in the case.

Finally, it concluded that the fact that the trademark words in question were used in different word formulas and in connection with a new logo during the term of the policy did not make a difference.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The underlying suit asserted the copyright infringement claims which fell within potential coverage and triggered the right to independent counsel.

On cross-motion for summary judgment on stipulated facts the court ruled for American Family, the insurer. It had agreed to defend through independent counsel, but was permitted to challenge the obligation to defend where a settlement proposal from Microsoft was accepted for $50,000 after notice was provided to the insurer. American Family indicated an interest in contribution but did not take a definitive

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Affirming the trial court, at issue was a class action lawsuit for TCPA violations under an “advertising injury” coverage provision. The district court concluded that neither the “advertising injury” nor “property damage” provisions were implicated. While an invasion of privacy did include a right of seclusion, the advertising injury provision in the policy is limited to violations of the privacy right of secrecy, not implicated by a TCPA claim.

It also specifically found that “the consumption of a fax recipient’s toner and paper is the intended consequence of the insured’s intentional act when sending a fax, and is therefore not ‘accidental’ within the meaning of the Policy.” Id. at *2.

The latter determination appears inconsistent with the published court of appeals

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Reversing the district court and finding that the known loss doctrine did not bar potential coverage in a libel case, the court reiterates the notion that fortuitous risk is required for coverage even under offense-based “personal and advertising injury” coverage. The first circuit thus reached a result that is inconsistent with a recent Illinois appellate court assertion by Federal, who standing in the policyholder’s shoes, sued Cincinnati Ins. Co.

Cincinnati Ins. Co. v. American Hardware Mfrs. Assoc., Inc., 898 N.E.2d 216, 237-38 (Ill. App. Ct. 2008) (“Federal contends that, if

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Analyzing the ”use of another’s advertising idea in your ‘advertisement’ ” question, the court determined whether in trademark infringement claim for wrongful use of the word “hobbit” by Hobbit Travel triggered a defense on the issue certified by the District Court.

The court found that it did, questioning the contrary line of authority including Callas Enterprises, Inc. v. Travelers Indem. Co., 193 F.3d 952, 956-57 (8th Cir. 1999).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court without hearing granted Landmark American Ins. Co.’s cross-motion. It found, however, that slander could be implicated by use of racial epithet, such as “nigger.” Although the earlier authority that found that the use of the term “nigger” itself was not slanderous per se, a recent case, which the court agreed with, found a different approach appropriate in National Union Fire Ins. Co. of Pittsburgh, PA v. Starplex Corp., 188 P.3d 332 (Or. Ct. App. 2008). Id. at *5.

The court reasoned,

This Court is persuaded by the reasoning of the Oregon Court of Appeals. The ultimate inquiry in every slander action is whether the statement, word, or phrase was “[a] false and unprivileged oral communication attributing to a person specific ... unfavorable characteristics or qualities ....” Shively v. Bozanich, 31 Cal.4th 1230, 1242, 7 Cal.Rptr.3d 576, 80 P.3d 676 (2003). . . . racial epithets are not simply a means of identification. No, because they “conjure up the entire history of racial discrimination in this country,” Richard Delgado, “A Tort Action for Racial Insults, Epithets, and Name Calling,” in Words that Wound 100 (Mari J. Matsuda et al.1993), racial epithets are much more than that. After all, it cannot seriously be argued that calling someone “black” or an “African-American” is the same thing as calling someone a “nigger.” This latter description, unlike the former descriptions, carries with it the weight of the collective historical experience of discrimination, complete with intimations of inferiority. . . .

Id. at *5.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The seventh cause of action in the Atkins Cross-Complaint alleged a claim against Thane and IMT for invasion of privacy, misappropriation of name and likeness, and alleged with specificity,

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court determined that the notice provision of the policy had not been satisfied and thus no duty to defend existed. At issue were six alleged instances of oral notice claimed that could constitute actual notice triggering the duty to provide coverage.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The suit initiated by Cincinnati sought a declaration that it had no duty to defend American Hardware Manufacturers Association (“AHMA”) and its executive officers. Following the initiation of suit, AHMA and its executive officers assigned their rights under the Cincinnati policies to defendant-counterclaimant Federal Insurance Company, which had agreed to fully defend their claims.

The court addressed a number of challenges by Cincinnati to Federal’s ability to act in that capacity, finding that the assignment agreement was supported by consideration, was not a prohibited partial assignment, did not run afoul of Cincinnati’s anti-assignment clause, nor violate public policy.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court affirmed summary judgment for the insurer, finding the first publication exclusion barred a defense for otherwise potentially covered trademark and trade dress claims. Spectrum advertised and distributed for its client, Sunset Health Products, the “Hollywood 48-Hour Miracle Diet” drink. Spectrum terminated its marketing agreement with Sunset and reformulated it with Tremain and Schwartz, who formed Celebrity Products to promote “The Original Hollywood Celebrity Diet” drink.

Slight variations in the physical appearance of the advertisements by Spectrum for Celebrity Diet remained after initial complaints. Judge Manella granted a TRO based on the dramatic change between Spectrum’s 1998 and 2001 labels.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court found that no duty to defend arose in a trade secret misappropriation case because an exclusion provided coverage for “any claim arising out of any misappropriation of trade secret” and professional liability policy issued by the defendant, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”) to the plaintiff Uniscribe Professional Services, Inc. (“Uniscribe”).

The issue before the Supreme Court of Massachusetts was of the absence of any language as to whose acts may trigger the exclusion for trade secrets results in ambiguity.

National Union, laying emphasis on the words “any claim arising out of,” asserts that the exclusion unambiguously covers all claims alleging misappropriation of a trade secret. Uniscribe responds that the exclusion is silent as to whether it applies to third-party conduct and therefore is ambiguous.

Id. at 697.

An exclusion barred a defense because the exclusionary phrase “arising out of”

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The pertinent “advertising injury” offense, “copying, in your ‘advertisement,’ a person’s or organization’s ‘advertising idea’ or style of ‘advertisement’ ” did not trigger a defense for the Colorado II action asserting trade dress claims in connection with a producer, importer and distributor of the NothinZ brand shoes sued by Crocs.

Whereas the underlying policy contained an express exclusion as applied to Crocs claims, the appeal dealt only with the umbrella policy’s provisions. Under the pertinent policy, “advertisement” was defined as:

[T]he widespread public dissemination of information or images that has the purpose of inducing the sale of goods, products, or services through . . . c. Any other publication that is given widespread public distribution.

Id. at *3.

“Advertising idea” is defined in the underlying policy as “any idea for an ‘advertisement[.]’ ” Id.
The court conceded that Crocs’ complaint provides notice of pleading of an “advertising injury” within the scope of the policy definition. Hence, the complaint rested

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court parted company with Gray Cary Ware & Freidenrich v. Vigilant Ins. Co., 114 Cal. App. 4th 1185, 1189-1190 (2004), which had determined that under Civil Code § 2860 the only aspect of the obligation of insurer to insured that required arbitration was the rate of pay for attorneys’ fees, not the reasonableness of the fees incurred encompassing the entire attorney fee dispute.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a per curiam decision a New Jersey state trial court analyzing a 1986 ISO policy provision found allegations for breach of a confidentiality agreement between two pharmaceutical companies triggered a defense. The court disagreed and found that these sole conduct in issue was violation of the written confidentiality agreement thereby triggering contract exclusion.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Alleged misappropriation of an Italian company’s furniture design for academic-style furniture, its designated CAMPUS line. See Studio & Partners v. KI, No. 06-C-0628, 2007 WL 3342597 (E.D. Wis. Nov. 7, 2007).

In 2003 KI applied for and received patents on an Einstein/Intellect desk and chair which are allegedly misappropriated from S&P’s furniture line. Also among the asserted claims was correction of patent inventorship

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Applying Indiana law the court found that the insurer’s botched communications with its insured as part of a purported reservation of rights, which it never articulated on a timely basis in writing, estopped it from contesting coverage where

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a per curiam decision, the court found that a TCPA blast fax case triggered coverage for invasion of privacy but elected to certify the issue not yet addressed by any state court in Florida, as follows:

DOES A COMMERCIAL LIABILITY POLICY WHICH PROVIDES COVERAGE FOR “ADVERTISING INJURY,” DEFINED AS “INJURY ARISING OUT OF ... ORAL OR WRITTEN PUBLICATION OF MATERIAL THAT VIOLATES A PERSON'S RIGHT OF PRIVACY,” SUCH AS THE POLICY DESCRIBED HERE, PROVIDE COVERAGE FOR DAMAGES FOR VIOLATION OF A LAW PROHIBITING USING ANY TELEPHONE FACSIMILE MACHINE TO SEND UNSOLICITED ADVERTISEMENT TO A TELEPHONE FACSIMILE MACHINE WHEN NO PRIVATE INFORMATION IS REVEALED IN THE FACSIMILE?

Id. at *7.

In determining that the issue was properly certified, the court noted that virtually all cases, with few exceptions, had found potential coverage where the language was identical to that herein. Those reaching contrary views had other pertinent language, typically issued by St. Paul or a subsidiary entity. See *3 n.5 and collected cases.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court found an applicable intellectual property exclusion which expressly eliminated coverage for trademark infringement barred coverage for a suit which alleged consumer confusion as to whether the AARP had sent cards that were in fact sent by a Mail House. A high-pressure sales pitch about financial services and living trusts, promoted to senior citizens by various Financial Services Defendants, was forwarded to them by the Mail House Defendants. The recipients could not determine that the pitch did not come from the AARP.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The court issued findings of fact and conclusions of law as to the scope of a Directors & Officers policy’s duty to cover reimbursement of defense fees and settlement costs in a patent infringement lawsuit. The court found for the insured.

It awarded plaintiff $31,070,981.62 plus

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Ninth Circuit affirmed the district court ruling by Judge Pregerson. It concluded that American did not have a duty to defend Island Def Jam Music Group, a division of UMG, from a suit filed against Def Jam by TVT Records, Inc. and TVT Music, Inc. in a contract dispute respecting the right to produce and market recording music performances by a rap group known as Cash Money Click (CMC).

Property damage was unavailable because there was no “occurrence” as the damage was the result of an intended or expected event.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Reversing District Court Judge Schiltz, Judge Bye authored an opinion (Smith and Colloton were on the panel) which found that an exclusion barred otherwise available coverage under a professional liability policy for alleged advertisement soliciting investors to buy real estate in Florida.

The alleged conduct included false advertising claims in connection with misrepresentations about the profitability of a real estate scheme calling for the acquisition of two Condominium Escrow Reservation Agreements. The pertinent exclusions D(1) and D(3) provided:

D. based on or arising out of:
1. the conversion, commingling, defalcation, misappropriation or improper use of funds or other property; [or]
...
3. the inability or failure to pay, collect or safeguard funds held for others.

Id. at 647.

The district court had concluded that the negligent misrepresentation claim alleged conduct separate from the improper use or failure to safeguard funds, i.e., the clients were wrongfully induced to deposit funds which were then mishandled. The court broadly read the “arising out of” language in the exclusion to extend it to bar any coverage, including a defense duty. It reasoned:
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Where a group of officers and directors were indicted and entered “not guilty” pleas, the court found that a D&O policy was required to defend. The pertinent clause of the Syntec policy stated:

[T]he Insurer shall advance, at the written request of the Insured, Defense Costs prior to the final disposition of a Claim. Such advanced payments by the Insurer shall be repaid to the Insurer by the Insureds or the Company severally according to their respective interests, in the event and to the extent that the Insured or the Company shall not be entitled under the terms and conditions of this policy to payment of such Loss.

Id. at *3.

Since the company was indemnifying the officers and directors, it fell within the provisions of this section in terms of being entitled to immediate reimbursement of defense fees.

The defendants proposed an allocation scheme – 63% to the MMC tower, 23% to the Synetic tower, and 14% to the Emdeon tower – based upon their contentions that “Plaintiffs ‘acquired an entity [i.e. Synetic f/k/a MMC] that was underinsured’ and ‘may not lawfully shift this uninsured liability to other insurance towers’ because the applicable tower of coverage has been exhausted.” Id. at *7.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link