In Hartford Casualty Insurance Company v. Swift Distribution, Inc., No. B234234, 2012 Cal. App. LEXIS 1131 (Cal. Ct. App. Oct. 29, 2012), the Court of Appeal of California, Second Appellate District, applying California law, affirmed a grant of summary judgment in favor of an insurer on the grounds that the insurer had no duty to defend or indemnify its policyholder under the advertising injury coverage of its policy against a suit alleging Lanham Act and unfair competition claims.
The policy language at issue provided coverage for “injury . . . arising out of . . . oral, 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.” Id. at *3-4. The policyholder sought a defense against a lawsuit alleging that the policyholder had “impermissibly manufactured, marketed and sold” its product, which allegedly “infringed patents and trademarks” belonging to its competitor. Id. at *4. The insured argued on appeal that the lawsuit against it alleged “facts that constituted the potentially covered offense of disparagement” under the policy.
In reviewing the trial court’s grant of summary judgment, the appellate court considered the underlying complaint against the policyholder, as well as “all facts known to the insurer from any source,” including the allegations in the competitor’s application for a temporary restraining order and the competitor’s responses to interrogatories. Id. at *9. The appellate court noted that the competitor’s claims were that the policyholder had engaged in false advertising of its product with the intent to mislead the public “as to the origin and ownership of rights” in the competitor’s mark. Id. at *10.
The court then compared these facts against the language of the insurance policy, noting that the policy provided coverage not for false advertising generally, but only for false advertising that disparages another. The court explained that disparagement, or injurious falsehood, “must specifically refer to the derogated property, business, goods, product, or services either by express mention or reference by reasonable implication.” Id. at *13-14. Here, there was no such express disparagement of the competitor or its products, as neither was mentioned in the challenged advertisements. The appellate court also rejected the policyholder’s argument that the underlying lawsuit involved allegations of “disparagement by implication,” as the advertisements contained no specific reference to the competitor’s product, no false comparisons to that product, and no false claims of ownership over unique technology related to the product, among other reasons. Because the underlying lawsuit merely alleged that the policyholder made false statements about its own product, with no disparagement of the competitor’s product, the court affirmed the trial court’s declaration that the underlying lawsuit did not potentially involve a covered advertising injury claim and that, therefore, the insurer had no duty to defend.
Although the duty to defend in a general liability policy is often broader than the duty to indemnify, the California Court of Appeal’s decision in Swift reaffirms that such defense provisions limit the duty to defend to suits involving a potential for coverage under the policy.