Coverage for Implicit Disparagement Is Not Limited to Claims “Of and Concerning” the Claimant

The Northern District of California sided with California Court of Appeals case Charlotte Russe over conflicting appellate cases Total Call and Swift, finding potential coverage without requirement that the disparaging statement specifically refer to the goods, products, or services of the claimant.

Recently, the Northern District of California weighed in on the divergent opinions of the California Court of Appeals on whether the personal and advertising injury offense of disparagement required an express statement “of and concerning” (aka “specifically referring to”) the claimant’s goods, products, or services.

In Tria Beauty, Inc. v. National Fire Ins. Co. of Hartford, No. C 12–05465 WHA, 2013 WL 2181649 (N.D. Cal. May 20, 2013), Judge Alsup recognized that Total Call International, Inc. v. Peerless Insurance Co., 181 Cal. App. 4th 161 (2010), substituted for the potential coverage standard a tort/demurrer standard, imposing an “of and concerning” element from the injurious falsehood torts onto the policy language.  Judge Alsup also recognized that the California Supreme Court granted review of and thus superseded Hartford Casualty Insurance Co. v. Swift Distribution, Inc., 210 Cal. App. 4th 915 (2012) (which relied on Total Call and expressly distanced itself from Charlotte Russe).

Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc. (which Tria adopted) correctly held:  “In order to trigger personal injury coverage it is not essential that the underlying claims must be expressly phrased in terms of ‘disparagement’ or trade libel, however.  The underlying claims may trigger a duty to defend if the conduct for which the policies provide coverage is charged by implication, as well as by direct accusation.”  207 Cal. App. 4th 969, 978 (2010) (citation omitted).

Charlotte Russe was thus consistent with coverage law in California and nationwide, where “courts have cast doubt on the notion that a complaint must support all elements of a cause of action to state potential liability.  [California courts have] rejected the argument that there was no coverage for a potential malicious prosecution claim even though it was clear that the malicious prosecution claim could not be brought because an essential element was missing (prior termination of the earlier proceeding in favor of the party alleging malicious prosecution).”  Hudson Ins. Co. v. Colony Ins. Co., 624 F.3d 1264, 1269–70 (9th Cir. (Cal.) 2010); see also McCormack Baron Mgmt. Servs., Inc. v. Am. Guar. & Liab. Ins. Co., 989 S.W.2d 168, 171–72 (Mo. 1999) (“The word ‘offense’ cannot be read to limit coverage only to a particular ‘cause of action’ or ‘claim.’  The word ‘offense’ simply does not have this meaning in either common usage or legal usage. … Certainly, American Guarantee is free to contract with its policyholders for whatever type of insurance it wishes to provide.  Coverage could be limited to specific and formal causes of action. … [W]e do not find that the use of the term ‘offense’ prior to the words ‘disparages a person’s … services’ is sufficient to create such a limited coverage that would defeat McCormack’s right to a defense when sued for statements alleging ‘insubordination’ of an employee and asking that the employer fire that employee. … [S]uch restrictive reading of that term would effectively write the coverage clause out of the policy altogether.”).

The result in Tria was also therefore consistent with Michael Taylor Designs, Inc. v. Travelers Property Casualty Co. of America, 495 F. App’x 830, 831 (2012), which relied on Charlotte Russe while ignoring Swift.  (See David A. Gauntlett, California Supreme Court Review of Insurance Case on Implied Disparagement Presents Opportunities for Coverage in Intellectual Property Litigation, Gauntlett on Intellectual Property / Antitrust Insurance (Feb. 15, 2013), https://gauntlettonipinsurance.wordpress.com.)

Ultimately, Total Call did not turn on the policy offense of “use of another’s advertising idea in your ‘advertisement’,” although the insured did allege it as an alternative basis for the carrier’s duty to defend.  181 Cal. App. 4th at 169 n.2.  The carrier’s briefing does address this alternative, however.  Brief for Respondent, Total Call Int’l, Inc. v. Peerless Ins. Co., 2009 WL 2703941, at *19–20 (2009) (No. B212923).  Interestingly, the policy contained an unusual amendment (Form GECG 635) to Personal and Advertising Injury Coverage B which removed coverage for trade dress infringement (typically included in offense (g)) and redefined “advertisement.”  Id. at *6–7.

It is unknown whether this endorsement would even be enforceable, as “unless the notice of the reduction in coverage is ‘conspicuous, plain and clear,’ the insurance company is bound by a greater coverage in an earlier policy when a renewal policy is issued.”  Classic Distrib. & Beverage Group, Inc. v. Travelers Cas. and Sur. Co. of Am., No. CV 11–07075 GAF (RZx), 2012 WL 3860597, at *6 (C.D. Cal. Aug. 29, 2012) (citations omitted).  The requirement that reductions in coverage be “conspicuous, plain and clear” applies to both renewals and original policies, whenever an insurer purports to change what is otherwise a policyholder’s reasonable expectation of coverage.  E.M.M.I. Inc. v. Zurich Am, Ins. Co., 32 Cal. 4th 465, 469 (2004) (analyzing coverage under a single policy’s exclusions); MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 639 (2003) (same).

Form GECG 635 did not itself notify the policyholder of the reduction, it simply presented the re-written offense (g) and “advertisement” definition without explaining what had been removed.  Although the Total Call record is not clear as to its specific policy, in practice Form GECG 635 is often packaged with a notice of the removed coverage in separate form.  This notice emphasizes the elimination of trade dress coverage (which Traveler’s Web Xtend endorsement, discussed infra, does not do):

RESTRICTIONS IN COVERAGE

Trade dress infringement, a species of trademark infringement, is now also excluded from coverage.  The definition of “personal and advertising injury” has been modified to delete reference to “trade dress” infringement as an enumerated offense.  There is no duty to defend suits alleging trademark and/or trade dress infringement under Coverage B as modified by this endorsement.

ST-GLCA-401 (06/04)

Despite flawed and piecemeal notice, the endorsement to the “advertisement” definition may have been enough to dissuade the insured from pursuing a defense under the “use of another’s advertising idea in your ‘advertisement’.”  The notice of the amendment certainly would have placed them in a more difficult position than that of the insured in Premier Pet Products, LLC v. Travelers Property Casualty Co. of America, 678 F. Supp. 2d 409, 417 (2010), where no notice of the express reduction in coverage for “infringement of trade dress in your ‘advertisement’” was included in the Web Xtend endorsement.  The Premier Pet court took the original policy language into consideration along with any new coverage provisions in the amendment.  Id.

Relevant parts of Form GECG 635 and the separate notice are depicted below (including typeface formatting); .pdfs of both forms available here:  Form GECG 635 and Notice.

AMENDMENT OF COVERAGE B PERSONAL

AND ADVERTISING INJURY LIABILITY

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART

I.    The Definition of “Advertisement” at paragraph 1 of Section V – Definitions is replaced by the following:

1.   “Advertisement” dissemination of information or images to the general public for the purpose of inducing the sale of your goods, products or services through:

(1)  Radio;

(2)  Television;

(3)  Billboard;

(4)  Magazine;

(5)  Newspaper;

(6)  the Internet; or

(7)  “Your Web Site”

However, “advertisement” does not include the design, printed material, information or images contained in, on or upon the packaging or labeling of any goods or products.

II.   Sub section g. in the Definition of “Personal and Advertising Injury” at paragraph 14 of Section V – Definitions is replaced with the following:

g.   Infringing upon another’s copyright or slogan in your “advertisement”.

GECG 635 (05/04)

* * *      * * *      * * *

NOTICE TO POLICYHOLDERS

COMMERCIAL GENERAL LIABILITY

BROADENINGS, RESTRICTIONS AND CLARIFICATIONS OF COVERAGE

This notice has been prepared in conjunction with the implementation of changes to your policy.  It contains a brief synopsis of the significant broadenings, restrictions and clarifications of coverage that were made in each policy form and endorsement.  This notice does not reference every editorial change made in these forms and endorsements.

Please read your policy, and the endorsements attached to your policy, carefully.

PERSONAL AND ADVERTISING INJURY LIABILITY

Form GECG 635 – Amendment of Coverage B Personal and Advertising Injury Liability

This endorsement revises the coverage afforded under Coverage B of the CG 0001(10 01) policy form and results in broadening coverage in certain respects, clarifies the coverage afforded there under and may, in certain states, result in a decrease in other respects. The impacts of the changes in the revision are very difficult to quantify and may differ in different states.

BROADENINGS OF COVERAGE

By this endorsement, Coverage B is specifically extended to advertising via the Internet and/or through the Insured’s own Web site.  Advertising via electronic transmissions and new media sources accessible to the public at large meets this definition.

RESTRICTIONS IN COVERAGE

Trade dress infringement, a species of trademark infringement, is now also excluded from coverage.  The definition of “personal and advertising injury” has been modified to delete reference to “trade dress” infringement as an enumerated offense.  There is no duty to defend suits alleging trademark and/or trade dress infringement under Coverage B as modified by this endorsement.

Likewise, the definition of the term “advertising” has been modified to specify that the design, packaging or labeling of any goods or products do not themselves constitute advertising.  Thus allegations of trade dress infringement in the appearance of goods alone do not trigger coverage under the insuring clause of Coverage B as modified by this endorsement.

ST-GLCA-401 (06/04)

* * *      * * *      * * *

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