In an underlying false advertising suit involving Kim Kardashian, a California federal court held that the disparagement policy language at issue covered implied disparagement claims based on statements made by the policyholder about its own products in its advertisements.
Tria Beauty is a manufacturer and seller of beauty products, including a laser hair-removal device and a light-based acne treatment product. Tria filed suit against a competitor, Radiancy, Inc., alleging false advertising, unfair competition and trademark infringement. Radiancy responded with counter-claims against both Tria and its spokesperson Kim Kardashian, specifically that false and misleading statements were made by Tria about its own products that damaged Radiancy. Tria only made statements that its own products were superior.
Tria sought coverage from National Fire Insurance Co. and Travelers Property Casualty Co., but both insurers objected. The two insurers had identical language regarding advertising falsehoods that triggered coverage: material “that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.”
But whether the language applied to implied disparagement was a tricky question that has split the federal district courts in California, U.S. District Court Judge William Alsup noted. He chose to follow a decision from the state appellate court, Travelers Prop. Cas. Co. v. Charlotte Russe Holding, Inc., 207 Cal. App. 4th 969 (2012), where the court found coverage was triggered by an underlying complaint alleging disparagement by implication – even when the claims of superiority were made by an insured about its own product.
“The question raised by the conflicting authority is whether the policy language included coverage for claims that sounded in disparagement in the broader sense of injurious falsehoods, as opposed to a narrower category of claims that met the pleading requirements for trade libel,” the court said. “This turns on an ambiguity in the policy term ‘disparages,’ which must be resolved by construing the language in a way that is consistent with Tria’s objectively reasonable expectations, and in case of doubt, against the insurers.”
Judge Alsup also found it significant that the policy language at issue was disjunctive (“slanders or libels . . . or disparages”) and did not delineate specific causes of action to which “disparagement” applied. Given this structure, done in the exclusions section, “reading the policy broadly to cover implied, ‘own-product’ disparagement would be consistent with a reasonable insured’s objective expectations,” he wrote. And the fact that the case settled was also not an issue, as “a non-meritorious underlying action does not preclude coverage.”
Radiancy’s counter-claims therefore triggered coverage for Tria under both policies, Judge Alsup concluded.
However, the court ultimately granted the insurers’ motions for summary judgment based upon an applicable intellectual property exclusion and because none of the advertising statements at issue occurred during the term of the policy.
To read the decision in Tria Beauty, Inc. v. National Fire Insurance Co. of Hartford, click here.
Why it matters: Although the court ultimately granted summary judgment for both insurers on other grounds, the decision in Tria strengthens a policyholder’s argument that coverage is available for implied disparagement claims and further supports the holding in Charlotte Russe that a policyholder’s statements about its own products could trigger coverage for disparagement claims.