Advertising Law Blog

The following Client Alert was written by Jeremy M. King and Andrew B. Lustigman.

The California Supreme Court currently is considering an appeal that will have broad-reaching consequences for policyholders that face allegations of patent and trademark infringement. Hartford Cas. Ins. Co. v. Swift Distribution, Inc., No. S207172 (Cal.). Gary-Michael Dahl sued Swift Distribution, Inc. (dba Ultimate Support Systems, Inc.) ("Ultimate") alleging that Ultimate's sale and advertisement of its "Ulti-Cart" infringed upon the patent and trademarks of Dahl's "Multi-Cart," diluted Dahl's mark, and misled the public. Ultimate tendered the defense of Dahl's suit to its insurer, Hartford Casualty Insurance Company, pursuant to a Hartford policy whereby Hartford insured Dahl against allegations of "personal and advertising injury," including "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[.]"

Hartford filed suit in the Superior Court of Los Angeles County seeking a declaration that it had no obligation to defend or indemnify Ultimate with respect to Dahl's suit. The Superior Court granted summary judgment in Hartford's favor, and the Court of Appeal affirmed on the grounds that the advertisements on which Dahl relied did not expressly reference Dahl's "Multi-Cart" and did not directly address Dahl's Multi-Cart business so there was no disparagement falling within the terms of the policy.

Ultimate appealed to the California Supreme Court, contending that the Court of Appeal's decision conflicted with prior California state and federal precedent that recognize coverage for disparagement by implication, and requesting that the Court hold that an insurer has a duty to defend when an underlying complaint involves facts that may lead to a disparagement by implication claims even if each element of such a claim is not affirmatively pleaded by the underlying plaintiff. In a brief made available on December 10, 2013, Ultimate responded to amicus submissions from four (4) separate insurance industry affiliated entities, and urged the Court to follow the rule of Travelers Property Casualty Co. of Am. v. Charlotte Russe Holding, Inc., 207 Cal. App. 4th 969 (2012), finding that allegations of fact giving rise to the possibility of disparagement by implication trigger an insurer's defense obligation even if a disparagement cause of action is not pleaded.

Policyholders, as well as coverage counsel, should follow the Court's treatment of this case closely. Ultimate's appeal affords the Court with the opportunity to again reaffirm the broad nature of an insurer's duty to defend and uphold the principle that the underlying plaintiff's counsel does not control the availability of insurance by the manner in which the complaint is drafted. A decision in Ultimate's favor would be a significant victory for policyholders facing unfair competition, Lanham Act, and infringement claims.

For more information regarding insurance coverage for advertising injury claims, please contact the Olshan attorney with whom you regularly work or either of the attorneys listed above.

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