In Hartford Casualty Insurance Company v. Swift Distribution, Inc., No. S207172 (Cal. Sup. Ct., June 12, 2014), the Supreme Court of California, applying California state law, upheld the trial court’s granting of Hartford Casualty Insurance Company’s (“Hartford”) motion for summary judgment ruling it had no duty to defend or indemnify a claim tendered by its insured under the advertising injury provision of a general liability policy.  In so doing, the California Supreme Court resolved a split of authority in the California appellate courts regarding the specificity of allegations required to trigger an insurer’s duty to defend or indemnify claims for advertising injuries.

The commercial general liability policy was issued by Hartford to Swift Distribution, Inc., and included a provision for coverage of advertising injury.  Swift sells a product called the Ulti-Cart, a multi-use cart marketed to help musicians load and transport their equipment.  Gary-Michael Dahl held multiple patents on a similar convertible transport cart called the Multi-Cart, which had been sold commercially since 1997.  In January 2010, Dahl filed an action in federal district court against Swift alleging Swift impermissibly manufactured, marketed, and sold the Ulti-Cart, infringing on Dahl’s patents and diluting the Multi-Cart trademark.  Dahl claimed Swift’s false and misleading advertisements and use of a nearly identical mark were likely to cause consumer confusion.  The complaint attached Swift’s advertisements, which did not name the Multi-Cart or any other product.

Swift tendered defense of the Dahl’s complaint to Hartford seeking coverage for what Swift alleged was a claim for disparagement covered under the Hartford policy’s advertising injury provision.  Hartford denied any duty to defend or indemnify, asserting that there could be no claim for disparagement absent a specific statement about a competitor’s goods. In July 2010, Hartford filed a complaint seeking a declaratory judgment that it had no duty to defend or indemnify Swift in the Dahl action.  Hartford’s complaint argued that the allegations in the underlying action did not satisfy the elements of disparagement.  While the Hartford action was pending, the trial court in Dahl granted Swift’s motion for summary adjudication on the claims of patent infringement, and Swift and Dahl settled the remaining claims.  Hartford and Swift then filed cross motions for summary judgment in Hartford’s declaratory relief action.  The superior court granted Hartford’s motion for summary judgment and Swift appealed. 

The Court of Appeal agreed with Hartford and in so doing expressly disagreed with the Court of Appeal’s reasoning in Travelers Property Casualty Company of America v. Charlotte Russe Holding, Inc., (2012) 207 Cal.App.4th 969.  There an apparel manufacturer, People’s Liberation, filed an action against a clothing store, Charlotte Russe.  The complaint alleged that Charlotte Russe’s heavy discounts on People’s Liberation premium apparel communicated to consumers that its products were of inferior quality.  The court rejected the insurer’s contentions that the claim was not covered because the underlying pleadings did not allege an injurious false statement disparaging the manufacturer’s products.  Instead, the court found it was sufficient that the complaint alleged People’s Liberation brand was a premium good and that Charlotte Russe published prices that implied otherwise.

The Court of Appeal in Hartford disagreed, holding reduced prices of goods, without more, cannot constitute disparagement.  The California Supreme Court granted review to clarify the principles governing the scope of a commercial general liability insurer’s duty to defend and indemnify an insured against a claim alleging disparagement.

Swift advanced two theories of disparagement:  (1) Dahl’s claim that the similarity of the Ulti-Cart’s design and product name to the Multi-Cart’s design and product name led consumers to confuse the Ulti-Cart with the Multi-Cart; and (2) that Swift’s advertisements included false statements of superiority that implied the inferiority of the Multi-Cart.

The California Supreme Court held the Court of Appeal in Hartford correctly concluded that even if the use of “Ulti-Cart” could reasonably imply a reference to “Multi-Cart,” Swift’s advertisement contained no disparagement, noting that consumer confusion resulting from similarity may support claim of patent or trademark infringement or unfair competition, but does not by itself support a claim of disparagement.  The California Supreme Court further observed that mere claims of superiority and puffing are not specific enough to call into question Dahl’s proprietary rights in his product, noting that to accept Swift’s theory of disparagement would make almost any advertisement extolling the superior quality of a company or its products fodder for litigation.