Although Gravamen Of Underlying Action Was Non-Covered Trademark Infringement, District Court Found Duty To Defend Based On Potential Covered Liability For Trade Dress Infringement In Insured’s Advertisements
Great Lakes Reinsurance UK PLC v. In & Out Fashion, Inc., 2016 U.S. Dist. LEXIS 80656 (C.D. Cal. June 20, 2016)
Categories: Duty to Defend – Personal and Advertising Injury Coverage – Intellectual Property Exclusion – Trade Dress In Your Advertisement
In Great Lakes Reinsurance v. In & Out Fashion, the district court decided on cross-motions for partial summary judgment whether a commercial general liability insurer had a duty to defend an underlying lawsuit for damages and injunctive relief arising out of the insured garment merchant’s alleged advertising, offering to sell, sale, and distribution of products that infringed various intellectual property rights of the clothing company Forever 21.
The policies at issue covered damages because of “personal and advertising injury,” which the policies defined to include injury arising out of “[i]nfringing upon another’s … trade dress … in your ‘advertisement’.” The policies excluded “personal and advertising injury” arising out of “the infringement of … trademark … or other intellectual property rights” but further stated that “this exclusion does not apply to infringement, in your ‘advertisement’, of … trade dress ….”
The district court agreed with the insurer that the gravamen of the underlying action involved alleged trademark infringement—which the policies do not cover; nevertheless, the court concluded that the underlying allegations presented potential covered liability for trade dress infringement in the insured’s advertising. In the district court’s view, a “reasonable inference” from the underlying allegations “is that there is something about the total image and overall appearance (i.e., trade dress) of these garments, besides their mere use of Forever 21 trademarks, that helps identify the garments as Forever 21 products.” (Internal quotes omitted). As to whether a sufficient causal nexus was presented, the district court concluded that it was, noting that the underlying complaint stated in fairly unequivocal terms that the claimant “has been injured as a result of the [insured’s] false and misleading advertisement, promotion, and sale of unauthorized . . . branded garments [of the claimant’s].”
In its conclusion, the district added that even if the underlying complaint had not been sufficient to place the insurer on notice of potential coverage under the policies, the claimant’s interrogatory responses—which the insured provided in one of its letters requesting a defense—made abundantly clear that the claimant was seeking damages for injuries that were potentially covered by the policies. In these responses, Forever 21 responded, “Yes,” when asked if it contends the actions of Defendants alleged in the Complaint include the unauthorized use of Plaintiff’s trade dress on or in conjunction with Defendant’s advertising or promotional materials, and whether Plaintiff seeks damages accordingly.
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