The Ninth Circuit recently held in Hyundai Motor America v. National Union Fire Ins. Company of Pittsburgh, PA that third-party patent infringement claims against Hyundai gave rise to a duty to defend. The case is a testament to the importance of broadly considering the potential for insurance coverage of all claims. The Court has just recently summarily rejected National Union’s request that the Ninth Circuit certify the coverage question to the California Supreme Court. Thus, this opinion will remain the last word on the subject for the time being.

Hyundai’s website included “build you own vehicle” and parts catalogue features which allowed website users to obtain customized vehicle and pricing information based on their own input. Hyundai was sued by a patent holding company which owned patents covering methods for generating product proposals for potential automobile customers. Hyundai sought defense of the third-party claim under an “advertising injury” coverage on the basis that the coverage extended to claims for injuries arising out of “Misappropriation of advertising ideas.”

The court found that the patent infringement alleged against Hyundai constituted “misappropriation of advertising ideas” applying the “contextual reasonableness” standard articulated by the California Court of Appeal in Mez Industries, Inc v. Pacific National Ins. Co. Under that test, the court asks whether, in the context of the case and in light of common sense, the patents at issue “‘involve any process or invention which could reasonably be considered an ‘advertising injury.’” Here, the patents involved “a method of displaying information to the public at large for the purpose of facilitating sales, i.e., a method of advertising.” Thus, the allegations of the underlying complaint alleged facts within the scope of coverage.

Hyundai was also required to show that it was engaged in “advertising” and that a causal link existed between the alleged injury and the advertising. The “build you own vehicle” feature was found to be “advertising” even though it necessarily provided customized information to specific individuals based on those individuals’ input, because the feature is widely distributed to the public at large. Regarding the causal connection, the court stated:

When the patent infringement occurs independent of the actual advertisement of the underlying product, because the patent concerns the underlying product . . . then the causal connection typically is not established. When the patent infringement occurs in the course of the advertising, however, the causal connection is established.

In Hyundai, the patents covered the method for advertising (not the vehicles being advertised) and use of the “build your own vehicle” feature itself was infringement. Thus the causal connection was met.

The Ninth Circuit also reiterated the familiar principles establishing the breadth of the duty to defend. The Ninth Circuit held that the carrier must defend a third-party suit which potentially seeks damages within the coverage of the policy, and that a carrier may terminate its defense only if the third party complaint can by no conceivable theory raise a single issue which might be covered. And, while it is not clear that extrinsic facts (i.e., those not pled in the third-party complaint) may end the duty to defend, it is well established that extrinsic facts known to the insurer that present the potential for coverage may be considered to find coverage.

Again, the Hyundai Motors opinion is a testament to the importance of reviewing all incoming claims (whether in complaint, cross-complaints, etc.) for the potential of insurance coverage. Insurance coverage can exist for many different types of claims, including patent, antitrust and business tort litigation, and experienced coverage counsel can often quickly identify, from a simple review of the complaint, claims that are potentially covered and worth pursuing further.