On January 21 2011 a US district court judge for the Southern District of New York ruled that a comprehensive general liability policy issued by defendant Travelers Casualty Company of America clearly excluded coverage for the claims against Travelers' insured, Advance Watch, Ltd. The court concluded that the complaint of the plaintiff, Advance Watch, should be dismissed for failing to state a claim upon which relief could be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).

In an underlying action filed in the District Court of Connecticut in 2007, Timex Licensing Corporation commenced an action against Advance Watch arising out of events that had occurred in 2006 and 2007. Timex alleged that in 2005 and 2006, Advance Watch had failed to protect and preserve Timex's trademarks, designs and trade dress as it was required to do pursuant to a licensing agreement between the two companies. Advance Watch, in turn, sought coverage from Travelers for defence and indemnity emanating from the Timex action. Travelers denied coverage, noting that coverage for "personal and advertising injury" liability afforded under Section B of the insurance policy was excluded for "Advertising injury" or "Web site injury" arising out of a breach of contract, and further denied coverage based on the application of an IP exclusion. Advance filed a coverage suit against Travelers in the Southern District of New York.

In her pithy 11-page opinion, District Court Judge Naomi Rice Buchwald held that Travelers had met its burden of demonstrating that the underlying claim asserted by Timex claim fell solely and entirely within the operative breach of contract exclusion of the policy. The court was persuaded that, despite references to trade dress and trademark infringement, the Timex suit was one based solely on a breach of contract, and that the breach of contract exclusion in Travelers' policy served to bar coverage. The court was also persuaded by the fact that the District Court of Connecticut, in the underlying action between Timex and Advance Watch, denied post-trial motions to add unfair trade practices and breach of covenant claims.

In the declaratory judgment action, the court found particularly compelling Advance Watch's own argument in opposition to the post-trial motions in the underlying action, wherein Advance Watch argued that the entirety of the underlying trial revolved around Timex's breach of contract claim. The court concluded that Advance Watch's own argument in defence of the post-trial motions in the Timex action served to undermine its arguments in opposition to Travelers' motion to dismiss in the coverage action.

Advance Watch's coverage action against Travelers included claims for defence and indemnity in excess of $2 million. The plaintiff filed a notice of appeal, but this was ultimately withdrawn.

For further information on this topic please contact Robert F Priestley or Anthony M Tessitore at Mendes & Mount LLP by telephone (+1 212 261 8000), fax (+1 212 261 8750) or email ([email protected] or [email protected]).