California Court of Appeal Upholds No Duty to Defend Trademark Infringement Claim Where No Disparaging Acts Are Alleged

By November 9, 2012 October 25th, 2018 Insurance Blog, Margaret Miglietta
Margaret Miglietta

Margaret R. Miglietta

Hartford Casualty Insurance Co. v. Swift Distribution Inc., B234234, Oct. 29, 2012

Background

Hartford Casualty Insurance Co. (Hartford) issued a general liability insurance policy including advertising injury coverage to Swift Distribution Inc. (Swift).  The policy provided that Hartford would defend and indemnify Swift against any claims for damages resulting from the publication of material that disparages another organization’s goods or services.  Gary Dahl, who sold the “Multi-Cart,” sued Swift alleging Swift improperly marketed and sold its “Ulti-Cart,” which infringed upon Dahl’s trademarks and patents.  Although Swift advertised its product with a similar name, Swift’s advertisement did not identify the Multi-Cart or disparage it.  Swift tendered its defense to Hartford.  Hartford declined, filing a declaratory relief action seeking adjudication that it had no duty to defend Swift.  The trial court granted Hartford summary judgment finding it had no duty to defend the insured.

California Court of Appeal Affirms

The California Court of Appeal affirmed the judgment.  Applying the broader standard of proof to establish there was no potential for coverage, the court found that while Hartford’s policy provided coverage for product disparagement, no disparagement was alleged.  Specifically, Hartford’s policy provided coverage for “‘personal and advertising injury’ caused by an offense arising out of your business[.]”  The policy defined “personal and advertising injury” to include “injury… arising out of…

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ral, written, or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products, or services.”  The court recognized disparagement to mean a falsehood directed at an organization’s goods, citing Atlantic Mutual Ins. Co. v. J. Lamb, Inc. (2002) 100 Cal.App.4th 1017, 1035 and Total Call Internat., Inc. v. Peerless Ins. Co. (2010) 181 Cal.App.4th 161, 169.

Although Swift’s advertisement used the name “Ulti-Cart,” which was similar to Dahl’s “Multi-Cart,” the advertisement did not identify Dahl’s product, and did not say anything derogatory about Dahl’s goods.  Because Dahl’s claims were not within the scope of the policy, the court concluded that Hartford had no duty to defend its insured.

At the same time, the court disagreed with and found the recent holding of Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc. (2012) 207 Cal.App.4th 969 (Charlotte Russe) did not apply.  In Charlotte Russe, the court agreed with a manufacturer’s allegations that steep markdowns of its apparel by a retailer suggested to consumers that its products were inferior and therefore constituted advertising injury.  On that basis, the court found a potential for coverage triggering a duty to defend.  The Swift court disagreed that sharp pricing discounts amounted to disparagement, but further found no such allegations were present in the facts before it and therefore, the Charlotte Russe holding did not apply.