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

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.
 

hired by the producers of the ad and claiming to be a dog walker, calls two Lorriland employees were unaware they were speaking with an actor who “tries to sell dog urine he has collected to ‘you tobacco people’ because ‘dog pee is full of urea and that’s one of the chemicals in cigarettes.’ ” Id. at *2.

Lorillard asserted that the ad contained “false and misleading” information and ran afoul of Massachusetts law, which prohibits the taping of a telephone conversation without consent. American Legacy Foundation v. Lorillard Tobacco Co., Civ. No. 19406, 2002 WL 927383 at *1 (Del.Ch. Apr. 29, 2002). Id. at *1.

On January 18, 2002 Lorillard sent a letter entitled “Notice of Intent to Initiate Enforcement Proceeding Under the MSA. Therein it stated:

“[I]t has become abundantly clear that [plaintiff's] ‘truth campaign’ is not about conveying the truth about tobacco products to the American public, so much as vilifying and personally attacking tobacco companies and their employees.”

Id. at *3.

Following a preemptive declaratory judgment action against Lorillard under the MSA, Lorillard filed suit in Chancery Court in Delaware. Lorillard filed its answer in the Delaware action along with the seven counterclaims containing similar allegations to those made in the North Carolina action. The Delaware action proceeded on Lorillard’s counterclaims. Lorillard claims to have spent $17 million in its defense. The instant coverage complaint was filed on May 4, 2007.

Travelers never responded to three separate written tenders because its specialist was assigned to the matter was either promoted or reassigned. AIG and I&O under distinct policies declined a defense. Counsel for plaintiff in the underlying action, Wilmer, Cutler & Pickering, submitted the draft complaint threatening suit for libel and slander to its carriers. I&O claimed no knowledge of the underlying carrier. Scottsdale, the underlying carrier, eventually surfaced by claimed late notice.

The Lorillard counterclaim, in contrast to the initial demand letter, did not assert any express cause of action for libel or slander. It alleged essentially in its counterclaims that plaintiffs public statement that Lorillard was “trying to stop the truth® campaign” with its litigation were “false statements … consistent with ALF’s pattern of attacks upon, and vilification of, Lorrilard.” Id. at *9.

The Chancery Court concluded:

While Lorillard initially expressed an intent to file claims of libel and slander, Lorillard ultimately changed its strategy and opted to pursue strictly contractual claims. Lorillard III, 886 A.2d at *9. Within the Delaware Action, in a “procedural maneuver,” Lorillard specifically decided not to contest the truthfulness of plaintiff's ads. Id. at *28. Lorillard and plaintiff agreed, therefore, “that the matter presented [was] a straightforward contractual issue that turns on the legal interpretation of the words of the settlement agreement,” specifically, section VI(h) of the MSA. Id. at *8. Although an inquiry into plaintiff's underlying conduct was a necessary prerequisite to determining breach of that section-a lengthy exercise undertaken by the Chancery Court in Lorillard III-that (tortious) conduct was never the subject of a direct counterclaim by Lorillard. On appeal, the Delaware Supreme Court addressed the dispute between the parties as a contractual matter. Lorillard IV, 903 A.2d at 731 (“The primary question on appeal is whether any of ALF's advertisements in their ‘truth ®’ campaign violated the contractual language of the MSA prohibiting ‘vilification’ or ‘personal attacks.’ ”).

Id. at 10.

The court found that plaintiff is not a signatory to the MSA, which predated its creation, it is ultimately bound by it because of its bylaw provisions and public statements of ALF officers. Such bylaws and certificate of incorporation are contracts under settled law. Benihana of Tokyo, Inc. v. Behihana, Inc., 906 A.2d 114, 120 (Del. 2006). Id. at *11.

Exclusion (k) bars an express contract or agreement which breach is a basis for liability. The other policies were not implicated because there was no slander or libel claim which was preserved as factually asserted in connection with the pleading and the breach of contract exclusion otherwise applied.

The umbrella policy from National Union barred coverage because the plaintiffs’ truth® campaign is not an advertisement or if an advertisement, there were no claims asserted in tort within the advertising injury coverage.

$310,492.99, the present value of future royalty payments.

The D&O policy was issued from January 22, 1999 to January 22, 2002 on a claims-made basis with $10M policy limits and a SIR of $150,000. The insurer had delayed issuing a coverage opinion which concluded that there was no express exclusion for patent infringement or breach of contract cases. The court reasoned:

       The Court finds that all defense costs incurred by Combimatrix arose out of its indemnification of Montgomery for alleged wrongful acts committed by Montgomery. Specifically, the underlying Nanogen action centered on Nanogen’s accusations that Montgomery stole Nanogen’s technology and brought it to Combimatrix. Accordingly, Combimatrix and Montgomery presented a single and joint defense to the Nanogen suit.

Id. at *10.

The court found that the actions alleged by Nanogen against Montgomery arose from Montgomery’s actions as an officer of Combimatrix.

It was only when Montgomery was an employee at Combimatrix that he could have committed the alleged wrongful acts of revealing Nanogen confidential information or using Nanogen’s confidential information inappropriately.

Id. at *11.

The court reasoned:

       Contrary to Defendant’s position, the Court finds that, in this case, the duty to advance defense costs is broad as the duty to defend. See Hurley v. Columbia Cas. Co., 976 F.Supp. 268, 275 (D.Del.1997) . . . Shapiro v. Am. Home Assurance Co., 616 F.Supp. 906, 913 (D.Mass.1985) (finding that an insurance contract’s “statement of the duty to reimburse costs of defense ... is at least as broad as the duty to defend under traditional insurance provisions.”).

Id. at *11.

Notice was all that was required. No specific advice that a self-insured retention had been exhausted was necessary to trigger the insurer’s immediate obligation to reimburse defense costs.

       Furthermore, the explicit language of the Policy itself required Combimatrix to do no more than it did to notify Defendant of its claim.

Id. at *13.

A settlement was concluded in a manner so as to render it involuntary and in response to defendant’s breach of its duties where the insurer defendant refused to advise further on its insurance coverage position after initially denying a defense. Jamestown Builders, Inc. v. General Star Indemnity Co., 77 Cal. App. 4th 341, 346, 91 Cal. Rptr. 514 (1999). Id. at *13.

The insurer’s conduct in asserting non-coverage of patent infringement claims absent a specific exclusion was a breach of the covenant of good faith and fair dealing.

At trial, Favilla [who handled the claim for NUFI] conceded that the Policy did not contain any exclusions related to breach of contract and patents. Favilla admitted that he gave the coverage opinions to the insured even though he lacked sufficient information to determine whether any exclusions applied.
. . . .
       On November 3, 2003, almost 3 years after receiving notice of the claim, Plunkett [who handled the claim for NUFI following Favilla] wrote a first and final coverage letter to Combimatrix. Plunkett approached the review in a manner that revealed a steadfast determination to deny coverage.
Id. at *16.

Punitive damages were inappropriate, however, because there was no sufficient showing of malice, fraud or oppression.