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In Travelers Property Casualty Co. v. Charlotte Russe Holding, Inc., Case No. B232771 (Cal. App. July 13, 2012) (Second Appellate District), the California Court of Appeal held that conduct implied in the pleadings of the underlying claim, i.e. trade libel, is sufficient to trigger a duty to defend. The causes of action in the underlying complaint alleged damage to the claimant’s clothing brand by unauthorized mark-downs, which implied “disparagement.” Though the underlying complaint did not allege disparagement directly, the implication was sufficient to trigger a duty to defend under the policies’ advertising coverage.
Facts & Holding
Versatile sued Charlotte Russe for breach of contract and misrepresentation. Versatile alleged Charlotte Russe promised to “promote the sale of premium brand denim and knit products … at a higher price point,” and breached that obligation by selling the products at mark-down prices, causing diminution of the brand value.
The Travelers’ policies at issue included “advertising injury” liability coverage that applied to “ ‘[a]dvertising injury’ caused by an offense committed in the course of advertising your goods, products or services; ...” They provided coverage for claims alleging injury arising out of publication that “disparages” goods, products or services, and excluded coverage arising out of a contract breach.
Travelers refused to defend because the claims did not allege disparagement as required by the policies, claiming “the reduction of a product's price is not ... disparagement.” Travelers also noted that the underlying allegations did not allege publication of a false statement, a necessary element of trade libel. Travelers filed a declaratory relief action and the trial court granted Travelers' motion for summary judgment.
The Court of Appeal did not focus on the labels given to the causes of action contained in the Versatile complaint, but on the alleged or known extrinsic facts. The court ruled it is not essential that the causes of action in the underlying claim be expressly phrased in terms of “disparagement” or trade libel; the underlying complaint may trigger a duty to defend if the implied conduct is covered. Here, the causes of action in the underlying complaint implied that Charlotte Russe had falsely represented the premium brand by marking it down. This implied that Charlotte Russe’s pricing was false, which according to the court, is enough.
The court also rejected Travelers’ argument that the underlying claims could not be covered because they did not allege all elements of a trade libel cause of action, and specifically the element of false publication. The court explained the insurer's duty to defend is not conditioned on the sufficiency of the underlying allegations.
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