In Epson Electronics America, Inc. v. Tokio Marine & Nachido Fire Insurance Company, Ltd., No. C-12-4592, 2013 WL 3811203 (N.D. Cal. Jul. 19, 2013), the district court for the Northern District of California, applying California law, granted summary judgment in favor of a commercial general liability insurer, holding that the insurer had no duty to defend its policyholder in multiple lawsuits asserting state unfair competition and deceptive trade practices; the underlying claims arose in connection with an alleged price-fixing conspiracy by manufacturers of LCD flat panel screens.
Plaintiffs in the underlying antitrust action alleged that the policyholder in Epson Electronics,along with dozens of other entities, engaged in a price-fixing scheme for LCD flat panel screens. Nearly thirty cases relating to the alleged conspiracy were consolidated in a Multi-District Litigation proceeding in the Northern District of California. Twelve of those cases, which the policyholder labeled the “State Law False Advertising Cases,” alleged violations of state unfair competition or deceptive trade practices laws.
The policyholder demanded a defense in those cases from its general liability insurer under the personal and advertising injury liability coverage provisions of the policy. The policy defined “personal and advertising injury,” in relevant part, as “injury…arising out of…[t]he use of another’s advertising idea in your ‘advertisement.’” An “advertisement” was defined as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” The specific allegations in the underlying complaints that the policyholder argued constituted ‘advertisements’ were various allegedly false or misleading statements by representatives of companies other than the policyholder, made in the media, to investors, and to others, purporting to explain price increases for LCD products.
The district court acknowledged that the duty to defend is broad, encompassing claims giving rise to a potential for coverage under the policy. Despite the broad nature of that duty, however, the court concluded that characterizing the statements at issue as ‘advertisements’ was an “unwarranted stretch.” The court first set forth a three-pronged test employed by California courts to determine coverage under the advertising injury provisions of a general liability policy: (1) was the insured engaged in any “advertising” at the time of the alleged injury? (2) do the allegations create a potential for liability under one of the covered offenses, and (3) is there a causal connection between the alleged injury and the “advertising.” It then analyzed the claim pursuant to that framework. It concluded that, even if the statements were considered to be “advertisements” within the meaning of the policy provision, the acts were not properly characterized as “use of another’s advertising idea” because “[t]he policy language referring to injury arising from the ‘use of another’s advertising idea’ plainly contemplates some kind of misappropriation claim.” The court reasoned: “The claims in the underlying actions are not for ‘use’ by Epson of ‘another’s advertising idea,’ but for statements by defendants, perhaps including Epson, that allegedly were false and misleading. Even treating those statements as ‘advertisements,’ nothing in the policy language provides coverage for injuries arising out of the offense of false or misleading advertising.” The court also noted that the third prong of the test, a causal connection between the alleged injury and the “advertising,” was not satisfied. The court noted that even if there were a connection between the public statements and any alleged injuries separate from the antitrust violations, that “does not transform those statements into advertisements” implicating coverage under the advertising injury provision at issue. Concluding that there was no possibility of a covered claim giving rise to a duty to defend, the court granted summary judgment for the insurer.
Epson Electronics carries significance for its refusal to expand advertising injury coverage for misappropriating another’s ideas to encompass false statements regarding high prices. The court’s rejection of the policyholder’s interpretation of the language as “strained” and its argument as “convoluted” suggests that some courts are not willing to extend the duty to defend to claims and facts that do not clearly fall within the plain meaning of the policy language. This decision may serve as a guide to other courts interpreting advertising injury provisions or other coverages that include a duty to defend.