California Court of Appeal Finds No Coverage For Product Disparagement under Policy's Personal and Advertising PDF Print
Duty to Defend
Written by CBM   
Friday, 02 November 2012 00:00

In Hartford Casualty Insurance Company v. Swift Distribution, Inc. et al., No. BC442537 (Cal. Ct. App. Oct. 29, 2012), the California Second District Court of Appeal held that where an insured’s advertisement for a product made no express or implied disparaging statements towards another product, the insurer had no duty to defend the insured in a subsequent lawsuit under the policy’s personal and advertising injury provision.



Hartford Casualty Insurance Company issued a liability insurance policy to Swift Distribution, Inc. dba Ultimate Support Systems (respectively “Swift” and “Ultimate”).  The Hartford policy provided insurance coverage for personal and advertising injury.  The policy defined “personal and advertising injury” to include “injury . . . arising out of . . . [o]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.”

On January 26, 2012, Gary-Michael Dahl, who manufactured and sold the “Multi-Cart,” sued Swift and two of its employees doing business as Ultimate for patent and trademark infringement, unfair competition, dilution of a famous mark, and misleading advertising arising from Ultimate’s sale of its product, the “Ulti-Cart.”  The Dahl complaint alleged that Ultimate impermissibly manufactured, marketed, and sold the “Ulti-Cart,” which infringed patents and trademarks for Dahl’s Multi-Cart and diluted Dahl’s trademark.  The complaint attached advertisements for the Ulti-Cart, which did not name the Multi-Cart, Dahl, or any other products other than the Ulti-Cart.

Ultimate tendered defense of Dahl’s action to Hartford three times, but Hartford refused to defend or indemnify it in the Dahl action.  Hartford filed a complaint for declaratory relief against Ultimate, seeking a declaration that it had no duty to defend or indemnify Ultimate in the Dahl action, and the trial court granted Hartford’s subsequent motion for summary judgment.  Ultimate then appealed this judgment.

On appeal, the court noted that the duty to defend is determined by reference to the policy, the complaint, and all facts known to the insurer from any source.  The court then reviewed the allegations made by Dahl in the underlying action, wherein Dahl claimed unfair competition under the Lanham Act, alleging that Ultimate had intended to mislead the public to believe that the Ulti-Cart was the same as or related to the Multi-Cart.  Dahl also claimed Ultimate had engaged in misleading advertising, alleging that Dahl’s potential clients contacted Ultimate to buy its infringing product.  In an application for a temporary restraining order, Dahl further alleged that Ultimate created a likelihood of confusion with potential customers by adopting a nearly identical name for its product. 

After reviewing these allegations, the court determined that Hartford had no duty to defend or indemnify Ultimate.  Hartford’s policy only provided coverage for product disparagement, which the court noted is an injurious falsehood directed at another’s organization, products, goods, or services.  The court stated that the injurious falsehood must specifically refer to the derogated property, business, goods, product, or services either by express mention or reference by reasonable implication.  None of the facts alleged that Ultimate’s advertisements expressly referred to Dahl or the Multi-Cart.  The court then addressed whether Ultimate had disparaged Dahl or the Multi-Cart through reasonable implication.  It found that even if Ultimate’s use of the term “Ulti-Cart” could reasonably imply a reference to “Multi-Cart” by misleading the public into believing the Ulti-Cart was related to Dahl or his products, Ultimate’s advertisements contained no disparagement of the Multi-Cart.

The court also took the opportunity to review and distinguish Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., 207 Cal.App.4th 969 (2012), where the court found the insurer had a duty to defend against a claim of disparagement under the advertising injury provision of its policy, where the insured, the exclusive sales outlet for People’s Liberation apparel, had been marking down prices for the apparel.  The mark downs were found to suggest that the apparel was of inferior quality.  Noting this was factually dissimilar from the present matter, the court stated reducing the price of a good, without more, was not disparagement. 

 Swift Distribution Opinion[ ]192 Kb
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