PERSONAL AND ADVERTISING INJURY LIABILITY COVERAGE: AN ANALYTICAL APPROACH TO CLAIMS

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1 PERSONAL AND ADVERTISING INJURY LIABILITY COVERAGE: AN ANALYTICAL APPROACH TO CLAIMS Annual Update Covering cases from January January 2014 Authors: Shaun McParland Baldwin Thomas W. Arvanitis Dennis N. Ventura Tressler LLP 233 South Wacker Drive 22nd Floor Chicago, Illinois T F CALIFORNIA ILLINOIS NEW JERSEY NEW YORK

2 This article is for general information only and is not intended to give, and should not be relied on for, legal advice in any particular circumstance or fact situation. The reader is advised to consult with an attorney to address any particular situation. The opinions expressed herein are those of the authors and do not reflect the views of Tressler LLP or any of its clients. ATTORNEY ADVERTISING PURSUANT TO NEW YORK DR 2 101(F) Tressler LLP Personal and Advertising Injury Liability Coverage 2

3 THE PERSONAL AND ADVERTISING INJURY LIABILITY COVERAGE: AN ANALYTICAL APPROACH TO CLAIMS I. GENERAL REQUIREMENTS OF THE PERSONAL AND ADVERTISING INJURY COVERAGE A. THE INJURY MUST ARISE OUT OF ONE OF THE ENUMERATED OFFENSES The insured in State Farm Fire & Cas. Co. v. Anderson, No. 1:11-cv-304, 2013 U.S. Dist. Lexis (S.D. Miss. Apr. 23, 2013) (applying Mississippi law), was a board member of a homeowner s association in a neighborhood largely destroyed by Hurricane Katrina. The insured was alleged to have used his position for self-dealing and to facilitate a gaming corporation s takeover of the association in order to build a casino in the neighborhood. With little discussion, the court held that the allegations did not fall within any of the policy s enumerated personal injury and advertising injury offenses and that the insurers had no duty to defend or indemnify. B. THE OFFENSE MUST BE COMMITTED DURING THE POLICY PERIOD In 2003, the claimants in Chicago Ins. Co. v. City of Council Bluff, 713 F.3d 963 (8th Cir. 2013) (applying Iowa law), were exonerated and released from prison for a 1977 murder. The claimants sued the insured-city, alleging that it had wrongfully instituted legal process against them in violation of their constitutional rights. At issue was whether the personal injury coverage was triggered under policies issued to the City from 1982 through 1985, both of which afforded coverage for malicious prosecution caused by an occurrence. The policy defined an occurrence as an accident... which results, during the policy period, in such personal injury.... The policy defined occurrence as any injury or damages sustained during the policy term. The court held that the policies were not triggered based on its ruling in a related matter, Genesis Ins. Co. v. City of Council Bluffs, 677 F.3d 806 (8th Cir. 2012), in which it held that the tort of malicious prosecution occurs on the date when the underlying charges are filed. The court rejected the insured s argument that the policies occurrence definition made it so coverage was implicated by allegations of damages during their policy periods even if the alleged injury began prior to their policy periods. In Alticor, Inc. v. National Union Fire Ins. Co., 916 F. Supp. 2d 813 (W.D. Mich. 2013) (applying Michigan law), the insured was sued for certain antitrust violations, tortious interference, civil conspiracy and injurious falsehood. The insurer argued that, although a disparagement offense was alleged, the underlying complaint did not allege that the insured made any false statements during the policy period of the subject policy. The court agreed. However, the court noted that the interrogatory answers in the underlying suit revealed that the allegedly false statements occurred during the policy period. Therefore, the court found that the insurer had a duty to defend. In City of Glendale v. National Union Fire Ins. Co., No. 12-cv-380, 2013 U.S. Dist. Lexis (D. Ariz. Mar. 29, 2013) (applying Arizona law), the insured, Glendale, Arizona, was 3 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

4 alleged to have discriminated against a tenant of one of its airport hangers with the intent of making the sub-lease of the hangar unprofitable and with the hope that the tenant would give up its rights under the lease. The court first held that the alleged discrimination implicated the personal injury offense for wrongful eviction from, wrongful entry into or invasion of the right private occupancy of a... premises that a person occupies by or on behalf of its owner, landlord, or lessor. The court then addressed whether the policies in effect from 2008 to 2010 were triggered. While the city s wrongful conduct was alleged to have begun sometime shortly after the lease incepted in the early 1990s, it was also alleged to be part of an ongoing scheme and a long-standing policy that continued through the policy periods. Deposition and trial testimony identifying specific discriminatory conduct during the policy periods was also considered. Based on the foregoing, the court held that the complaint alleged a potential claim for personal and advertising injury caused by an offense committed during the policy periods, implicating a duty to defend. In Tria Beauty, Inc. v. National Fire Ins. Co. of Hartford, No. C , 2013 U.S. Dist. Lexis (N.D. Cal. May 20, 2013) (applying California law), the insured s competitor alleged that the insured made false and misleading statements about its own acne-treatment and hair removal products, which the court found gave rise to a potential claim for implied disparagement that fell within the disparagement offense. Because none of the potentially disparaging statements were made during the policy period of one of the policies, however, the court held there was no duty to defend under that policy. The court found that the insured s argument, that there could have been disparaging statements made on its website during the policy period, to be pure speculation because the only disparaging statements on the website were dated after the policy period. C. THE OFFENSE MUST OCCUR IN THE NAMED INSURED S BUSINESS In Hanover American Ins. Co. v. Saul, No. Civ , 2013 U.S. Dist. Lexis (W.D. Okla. Aug. 27, 2013) (applying Oklahoma law), the insured operated a chiropractic practice. The claimant, a patient of the insured, was allegedly molested by the insured s spouse at the insured s clinic. The underlying claim asserted a claim for negligence, which included the insured s failure to warn the claimant of the spouse s history and propensity for molestation and allowing the spouse access to the clinic. The underlying negligence claim alleged that the claimant suffered injuries arising out of spouse s humiliating actions in the clinic, and sought relief for the alleged humiliation. The court found that the claim did not implicate the humiliation offense in the definition of personal and advertising injury because the assailant was not an employee, nor was he otherwise a part of the insured s chiropractic business. Thus, the court determined that any humiliation did not arise out of the insured s business, as required by the insuring agreement. Accordingly, the court held that the insurer did not owe any duty to defend or indemnify. In Lexington Ins. Co. v. Tudor Ins. Co., No. 11-c-809, 2013 U.S. Dist. Lexis (E.D. Wis. Feb. 6, 2013) (applying Wisconsin law), the insured, Trek Bicycle Corp., had contractual relationships with cyclists Greg LeMond and Lance Armstrong, both of whom endorsed Trek Tressler LLP Personal and Advertising Injury Liability Coverage 4

5 brand bicycles. Trek allegedly failed to protect LeMond from defamatory statements made by Armstrong, which the court found implicated the policy s disparagement offense for purposes of a duty to defend. While the statements were allegedly made by Armstrong, the court found that the alleged disparagement arose out of the insured s business because Trek was in the Lance Armstrong business. D. CERTAIN OFFENSES MUST BE COMMITTED IN THE NAMED INSURED S ADVERTISEMENT In Basalite Concrete Products, LLC v. National Union Fire Ins. Co., No. 2:12-civ-02814, 2013 U.S. Dist. Lexis (E.D. Cal. May 17, 2013) (applying California law), the insured allegedly infringed upon the claimant s trademarks and patents by breaching a licensing agreement which permitted the claimant to utilize the claimant s know-how, molds, patent rights, and trademarks to manufacture, market and sell the claimant s products. The insured allegedly continued to use the trademarks and patents after the claimant requested that the insured cease doing so. The court held that the allegations did not implicate a duty to defend under the personal and advertising injury coverage s use of another s advertising idea offense because they did not refer to any advertisement of the insured, let alone allege that any of the infringement took place in an advertisement. In Epson Electronics America, Inc. v. Tokio Marine & Nachido Fire Ins. Co., 2013 U.S. Dist. Lexis (N.D. Cal. July 19, 2013) (applying California law), the insured was sued for unfair competition and violation of deceptive trade practice statutes of various states. The underlying claim alleged that the defendants made false promotional public statements which misrepresented the reasons for the high prices it was charging for its liquid crystal display products. Such statements were allegedly made in the media, to investors and the like. The court first found that such statements did not constitute advertisements. Additionally, even if the alleged statements were considered advertisements, the court determined that such statements did not constitute the use of another s advertising idea, because the insured was not alleged to have misappropriated any aspect of the claimant s advertising. Therefore, the court found that the insurer did not owe any defense obligation. In Liberty Corp. Capital Ltd. v. Security Safe Outlet, Inc., No. 5:12-cv-178, 2013 U.S. Dist. Lexis (E.D. Ky. Mar. 27, 2013) (applying Kentucky law), the insured was alleged to have misappropriated the claimant-competitor s trade secrets by using the claimant s confidential client information to send s to the claimant s customers which advertised the insured s products and services. The court held that the allegations implicated the use of another s advertising idea in your advertisement offense because the s to the claimant s customers constituted an advertisement, or notice that is broadcast to a specific market segment about the insured s goods. The court went on to find that the breach of contract exclusion precluded coverage for the claim. The insured in Purplus Inc. v. Hartford Cas. Ins., No. C , 2013 U.S. Dist. Lexis (N.D. Cal. Mar. 19, 2013) (applying California law), allegedly infringed upon the 5 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

6 claimant s copyrights and trademarks by selling unauthorized copies of Adobe Acrobat and other Adobe software products on its website. The court held that these allegations did not implicate the personal and advertising injury coverage for copying, in your advertisement, a person s or organization s advertising idea or style of advertisement because the complaint did not allege that the infringement took place in any advertisement. The court rejected the insured s argument that its advertisements of Adobe software extrinsic to the complaint should be considered, because neither the allegations in the complaint nor the causes of action alleged revealed the potential for any injury arising out of the insured s advertising. The court concluded that the insurer had no duty to defend or indemnify. In Air Engineering, Inc. v. Industrial Air Power, LLC, 828 N.W.2d 565 (Wis. App. Jan. 3, 2013) (applying Wisconsin law), the insured was sued for trade secret misappropriation, breach of contract, breach of fiduciary duty and unjust enrichment for allegedly using the same website source code and content as found on the claimant s website and for misappropriating an Internet Advertising System ( IAS ). This IAS was allegedly developed by the claimant to advertise its products to the public in order to facilitate sales. The IAS was designed to direct persons to the claimant s advertising and links detailing product information, based on certain Google search terms entered by such persons. The court first determined that the complaint alleged the use of another s advertising idea, based on the allegations that the insured misappropriated the claimant s IAS and the claimant s website source code and content. The court then determined that such misappropriation occurred in the insured s advertisement because the IAS and the insured s website gave potential customers notice about the insured s goods, products and services. The court further determined that there was a causal connection between the insured s advertising activity and the claimant s advertising injury, as the complaint alleged that the insured s conduct drew present and prospective customers away from the claimant. Accordingly, the court found that the insurer had a duty to defend. In Continental Cas. Co. v. Quality King Distributors, Inc., 2013 N.Y. Misc. Lexis 1045, 2013 N.Y. Slip OP 50346(u) (N.Y. Sup. Ct. Mar. 1, 2013) (applying New York law), the insured was sued for selling counterfeit products that infringed the claimant s copyrights and trademarks. The underlying claim included allegations that the insured sold the counterfeit products from the insured s website. The insured settled the claims against it for an amount within the limit of two primary policies issued by Continental. National Union, which issued two commercial umbrella policies sitting above the Continental policies, argued that it did not owe any defense or indemnity obligation on the basis that the primary Continental policies were implicated by the claims against the insured and that the Continental policies had not yet been exhausted. The court agreed with National Union that the claims against the insured implicated the advertising injury liability coverage of the Continental policies. Specifically, the court found that the underlying claims sufficiently alleged the advertising injury offenses of use of another s advertising injury and infringement of another s copyright, trade dress or slogan. In making this determination, the court noted that the alleged copyright and trademark offenses were committed in the insured s advertisement, based on the allegation that the insured sold the counterfeit products on the insured s website. Accordingly, the court found 2014 Tressler LLP Personal and Advertising Injury Liability Coverage 6

7 that underlying claims implicated the advertising injury liability coverage of the Continental policies and that National Union did not owe any defense or indemnity obligation. (PRE-1998 FORMS) CERTAIN OFFENSES MUST BE COMMITTED IN THE COURSE OF ADVERTISING 1. What Is Advertising? 2. In The Course Of Advertising In CGS Industries, Inc. v. Charter Oak Fire Ins. Co., 720 F.3d 71 (2d Cir. June 11, 2013) (applying New York law), the insured allegedly supplied Wal-Mart with jeans that infringed upon the claimant s distinctive rear pocket stitching design. The court held there was a duty to defend the insured because, at the time the underlying suit was filed, there was legal uncertainty as to whether the infringement of another s design or symbol implicated the advertising injury coverage s infringement of title offense. The court also held that the advertising injury coverage s in the course of advertising requirement was satisfied because the insured was alleged to have advertised the jeans. The court stated that if the insured had never actually advertised the jeans or if the insurer believed that the claimant did not intend to allege that the insured s infringement occurred in its advertising, it should have sought a bill of particulars to resolve any ambiguity in the underlying pleadings. In Dish Network Corp. v. Arch Specialty Ins. Co., No. 09-cv JLK, 2013 U.S. Dist. Lexis (D. Colo. Oct. 22, 2013) (applying Colorado law), the insureds were sued for patent infringement of certain telephone technology. The insureds were primarily engaged in the business of providing satellite television programming. One of the policies issued by National Union required that the advertising injury arise solely out of your advertising activities as a result of one or more of the enumerated offenses. The insured argued that the policy was ambiguous because the foregoing limitation conflicted with another policy limitation in the definition of occurrence, which required that the offense be committed in the course of advertising the named insured s good, products or services. The court disagreed with the insured and found that the limitations complement each other and ensure that advertising injury coverage is not expanded to encompass exposures only tangentially related to advertising. Accordingly, because the underlying claims did not arise solely out of the insured s advertising activity, the court found that National Union did not owe any duty to defend or indemnify. In Travelers Indem. Co. of Conn. v. Sterling Wholesale, LLC, No. 2:12-cv-156, 2013 U.S. Dist. Lexis (E.D. Va. July 19, 2013) (applying Virginia law), the insured was sued for trademark infringement based on the insured s involvement in a scheme involving the repackaging and sale of the claimant s products with counterfeit packaging and information. The insured was not among the defendants named as co-conspirators who were active in the production and re-packaging of the counterfeit products. The underlying claim, however, generally alleged that all of the defendants, including the insured, used a slogan, trade dress, 7 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

8 word, term, name, symbol or device in commercial advertising or promotion. The court found that the claim alleged the personal and advertising injury offense of infringement of copyright, title or slogan, based on the fact that Virginia law recognizes that trademarked terms can constitute slogans and based on the potential that the alleged counterfeit packaging and trademarks included slogans or copyrighted material. Additionally, the court determined that the alleged infringement was committed in the course of advertising, and that the alleged advertising activity potentially caused the claimant s injury. Thus, the court found that the personal and advertising injury liability coverage was implicated and that the insurer owed a duty to defend. E. THE OFFENSE MUST BE COMMITTED IN THE COVERAGE TERRITORY F. THE SUIT MUST SEEK DAMAGES In Big 5 Sporting Goods Corp. v. Zurich Am. Ins. Co., No. CV , 2013 U.S. Dist. Lexis (C.D. Cal. July 10, 2013) (applying California law), the insured was sued in multiple class actions for infringing customers privacy rights by requesting, recording and publishing customers zip codes in connection with credit card transactions in violation of the Song-Beverly Act of The underlying suits included claims for common law negligence and invasion of privacy. The court initially found that the underlying claims implicated the personal and advertising injury offense of oral or written publication of material that violates a person s right of privacy. However, the court found that the statutory violations exclusions applied to preclude any personal and advertising injury liability coverage because all of the underlying claims related to the alleged violation of the claimants privacy rights that were created by statute, and which were not based on common law. Additionally, the court determined that civil penalties recoverable under the Song-Beverly Act did not constitute damages covered under the policies. Accordingly, the court determined that the insurers did not owe any duty to defend or indemnify the insured. At issue in Arch Ins. Co. v. Michaels Stores, Inc., No (Cal. Super. Ct. Dec. 20, 2013) (applying California law), was whether the insurer had a duty to defend or indemnify the insured against six putative class actions alleging that the insured had violated the Song-Beverly Act by requiring customers to provide ZIP codes in conjunction with credit card transactions. The court held that the statutory penalties available under the Song-Beverly Act up to $250 for the first violation and $1,000 for each subsequent violation are not sums payable as damages because of personal and advertising injury. The court reasoned that the penalties are not compensatory but, rather, are designed to discourage retailers from combining personal identification information with credit card data. Because the putative class actions did not seek damages within the meaning of the policies, the court held that the insurer had no duty to defend or indemnify. While two of the underlying suits originally contained common law invasion of privacy claims, the court held that there was no duty to defend under the right of privacy offense because the common law claims were dismissed Tressler LLP Personal and Advertising Injury Liability Coverage 8

9 In Indiana Ins. Co. v. Brown Packing Co., No , 2013 Ill. App. Unpub. Lexis 988 (Ill. App. Ct. May 10, 2013) (applying Illinois law) (unpublished), the federal government filed a criminal information against the insured, which was engaged in the business of producing meat for human consumption. The federal government accused the insured of felony conspiracy to commit mail and wire fraud by unlawfully implanting veal calves with hormones and steroids, concealing that fact from customers, competitors and the federal government, and making fraudulent claims that its veal does not contain steroids. Thereafter, the insured pled guilty to the charges and agreed to a civil forfeiture of $2 million, which represented the proceeds obtained by the insured from the sale of the illegal hormone-enhanced veal. The court first determined that the civil forfeiture of $2 million constitutes a penalty and does not constitute damages within the meaning of the liability policy. The court also determined that the criminal information did not allege the personal injury offense of wrongful entry. Additionally, the court found that the criminal information did not allege the advertising injury offenses of disparagement or violation of person s right of privacy. Accordingly, the court determined that the insurer did not owe any defense or indemnity obligation to the insured. In Standard Mut. Ins. Co. v. Lay, 2013 IL (2013) (applying Illinois law), the claimant sought satisfaction of a settlement for claims that the insured sent unsolicited facsimile advertisements in violation of the Telephone Consumer Protection Act ( TCPA ). Reversing the appellate court, the Illinois Supreme Court held that the TCPA s liquidated damages of $500 per offense are remedial in nature, not penal. As a result, the court concluded that insurance coverage for statutory damages under the TCPA is not barred by Illinois law or public policy. The court reasoned that the TCPA is among a class of remedial statutes which are designed to grant remedies for the protection of rights and the public good. The court further noted that the TCPA s provision for treble damages indicates that the treble damages, not the liquidated damages, serve the goals of punishment and deterrence. At issue in Columbia Cas. Co. v. HIAR Holding, LLC, 411 S.W.3d 258 (Mo. 2013) (applying Missouri law), was whether an insurer was obligated to defend and indemnify its insured for claims that it had violated the Telephone Consumer Protection Act ( TCPA ) by sending unsolicited facsimile advertisements. The Missouri Supreme Court concluded that the TCPA s liquidated damages of $500 per offense are not in the nature of fines or penalties and, thus, constitute damages under the policies advertising injury coverage. This part of the court s decision overruled a Missouri appellate court case, Olsen v. Siddiqi, 371 N.W.3d 93 (Mo. App. 2012). The court went on to find that the advertising injury offense of publication of material that violates a person s right to privacy was implicated, rejecting the insurer s argument that the offense was limited to violations arising out of the content of advertising material itself and only applied to the privacy interests of individuals. Finally, the court held that coverage for the TCPA claims did not violate public policy because the insured s conduct was not willful or malicious. 9 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

10 G. THE CLAIM MUST FALL OUTSIDE THE EXCLUSIONS FOR PERSONAL AND ADVERTISING INJURY 1. The Exclusions Contained In The 1998 And 2001 CGL Policy Forms (a) Knowing Violation Of Another s Rights In CGS Industries, Inc. v. Charter Oak Fire Ins. Co., 720 F.3d 71 (2d Cir. June 11, 2013) (applying New York law), the insured was sued for trademark infringement for allegedly supplying Wal-Mart with jeans that infringed upon the claimant s distinctive rear pocket stitching design. The court held that the policy s advertising injury offense for infringement of title was implicated for purposes of a duty to defend and rejected the insurer s argument that the allegations fell within the knowing violation exclusion. The court reasoned that while the insured s infringement was alleged to have been committed intentionally, trademark infringement claims under the Lanham Act do not require proof of intentional conduct. Further, unlike cases where a defendant is alleged to be a serial infringer or to have falsely advertised its knock-off products as those of another, the facts alleged in the complaint raised the potential that the insured would be found liable for trademark infringement based on unintentional conduct. In State Auto Prop. & Cas. Ins. Co. v. Lagrotta, 529 Fed. Appx. 271 (3d Cir. June 26, 2013) (applying Pennsylvania law) (not precedential), the insured, a member of the Pennsylvania House of Representatives, faced claims of tortious interference with contract and prospective business relations arising out of press releases issued by the congressman s office stating that the claimant had relations with organized crime. It was alleged that as a result, the state health department rescinded approval of the sale of a nursing home to the claimant. The statements in the press release were allegedly made with malice and intent to harm the claimant and to convince the county not to consummate the sale. Based on the foregoing, the Third Circuit held that the knowing violation and knowledge of falsity exclusions precluded a duty to defend and indemnify the congressman. The court rejected the insured s argument that the exclusions did not apply because there were allegations of recklessness, reasoning that those allegations were a mere legal conclusion, while the facts in the complaint alleged an intent to harm. In Association Cas. Ins. Co. v. Major Mart, Inc., No. 1:12CV022-SA-DAS, 2013 U.S. Dist. Lexis (N.D. Miss. July 8, 2013) (applying Mississippi law), the insureds were sued for beach of the covenant of good faith and fair dealing, slander, defamation, tortious interference with business relationship, and conversion. The claim alleged that the insured engaged in guerilla warfare designed to ruin the claimant after a dispute arose over the pricing of beer products sold by the claimant. The claim alleged that the insureds told customers that the claimant was distributing bad or stale beer, and that such slanderous and defamatory statements were made intentionally, recklessly or negligently. The court found that the knowing violation and knowledge of falsity exclusions did not apply to preclude a defense obligation because of the potential that the complained of statements were made without 2014 Tressler LLP Personal and Advertising Injury Liability Coverage 10

11 knowledge of their falsity or that the statements would violate the rights of another. Therefore, the court found that the insurer owed a duty to defend. In Assurance Co. of America v.waldman, No. 1:13-cv-179, 2013 U.S. Dist. Lexis (S.D. Ohio Dec. 18, 2013) (applying Ohio law), the dissolution of the insured, an accounting firm, resulted in a myriad of litigation between its former partners. In one of the suits, two of the partners alleged that another, Waldman, disparaged them in written correspondence to the IRS. The court first noted that the complaint alleged claims that likely fell within the disparagement and right of privacy offenses in the personal and advertising injury coverage. However, the court went on to find that the knowing violation and breach of contract exclusions precluded any defense or indemnity obligation. The court reasoned that the complaint alleged that Waldman knowingly disclosed information designated as confidential to the IRS in bad faith. The complaint also contained several breach of contract counts which alleged that Waldman s conduct violated the non-disparagement clause of the dissolution settlement agreement entered into by the partners in another suit. In Charter Oak Ins. Co. v. Maglio s Fresh Food, No , 2013 U.S. Dist. Lexis (E.D. Pa. Oct. 24, 2013) (applying Pennsylvania law), the insured was sued for allegedly selling inferior frozen stromboli under the claimant s brand name. The court held that the claim fell within the scope of the disparagement offense. However, the claimant advanced uncovered claims at trial as well, such as the insured s use of deceptive samples. The court held that because the insured could not demonstrate whether the jury s verdict was based on covered or uncovered claims, the insurer had no duty to indemnify the insured. In a separate trial, the insured was found to have sold its stromboli by using product information applicable to the claimant s product, rather than its own, inferior stromboli. The court held that the insured failed to meet its burden of establishing that the claim fell within the scope of the disparagement offense. The evidence presented at trial indicated that the insured had only misrepresented the ingredients and characteristics of its own stromboli, not that it had made any misrepresentations about the claimant s stromboli. The court also held that the policies knowing violation exclusion precluded coverage because the insured s sales manager testified that the insured knew its product packaging did not accurately describe its stromboli and that the insured misled the public. In Cincinnati Ins. Co. v. Gage Center Dental Group, P.A., No KHV, 2013 U.S. Dist. Lexis (D. Kan. Nov. 1, 2013) (applying Kansas law), the insured was sued for breach of fiduciary duty, defamation, intentional interference with business expectancies, intentional interference with contract, and conspiracy to defame and slander. The court first found that the underlying claims implicated the disparagement offense in the definition of personal and advertising injury. The court then found that the knowing violation exclusion did not apply to preclude liability coverage, because the underlying claim for breach of fiduciary duty did not require a showing of intent and thus, the claimants could recover even if the insured did not have knowledge that its acts would inflict injury. Accordingly, the court found that the insurer owed a duty to defend. 11 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

12 The insured in Erie Ins. Prop. & Cas Co. v. Viewpoint, Inc., No. 5:12-cv-81, 2013 U.S. Dist. Lexis (N.D.W.V. Mar ) (applying West Virginia law), was alleged to have fraudulently induced a 71 year-old widow to sign a document which purportedly reinstituted an old oil and gas lease on her property for a significantly smaller sign-on bonus and royalties than were available on the open market. Based on these allegations the insured faced claims of civil conspiracy, outrage, unlawful-holding over, slander of title, negligence, and breach of implied covenant to diligently develop, produce and market. The court held that the knowing violation and knowledge of falsity exclusions precluded a duty to defend because the insured was alleged to have intentionally conspired with the other defendants to modify an expired lease in order to avoid paying a fair market price. In Lexington Ins. Co. v. Tudor Ins. Co., No. 11-c-809, 2013 U.S. Dist. Lexis (E.D. Wis. Feb. 6, 2013) (applying Wisconsin law), the insured, Trek Bicycle Corp., had contractual relationships with cyclists Greg LeMond and Lance Armstrong, both of whom were spokespersons for Trek-brand bicycles. Trek allegedly failed to protect LeMond s brand from defamatory statements made by Armstrong about LeMond. Trek also allegedly failed to protect LeMond against Armstrong s release of confidential arbitration statements made by LeMond and Armstrong s orchestration of a fake LeMond interview published in USA Today. Trek also allegedly drafted fake consumer s expressing a negative reaction to the newspaper article. The court held that the knowing violation exclusion did not preclude a duty to defend because the complaint did not allege that Trek intended to harm LeMond s cycling brand. In Signal Products, Inc. v. American Zurich Ins. Co., No. 2:13-cv-04581, 2013 U.S. Dist. Lexis (C.D. Cal. Dec. 19, 2013) (applying California law), Gucci America, Inc. alleged that the insured s handbags infringed upon Gucci s trade dress. The court in the liability suit entered judgment against the insured and awarded Gucci an accounting of profits based on its finding that the insured had intentionally and willfully copied Gucci s trade dress. The coverage court held that the insurer had no duty to indemnify the insured for the accounting of profits based on the policies knowing violation exclusion. In so doing, the court rejected the insured s argument that the standard for willfulness applied in the liability suit was distinct from the standard for willfulness applicable under the insurance policies. The court went on to hold that coverage was further precluded by California Insurance Code Section 533 because the insured s infringement was committed with knowledge that damage was highly probable or substantially certain to result. In U.S. Fire Ins. Co. v. Cyanotech Corp., No JMS-BMK, 2013 U.S. Dist. Lexis (D. Haw. Oct. 23, 2013) (applying Hawaii law), the insured was sued for patent infringement with respect to a certain drug compound called astaxanthin, tortious interference with a business relationship, and breach of confidentiality agreement. The underlying patent infringement claim alleged, in part, that the insured advertised certain products that infringed the claimants patent. The court first found that the underlying claims did not allege any of the personal and advertising injury offenses. Additionally, the court found that even if the underlying claims alleged personal and advertising injury, the knowing violation exclusion applied to preclude coverage, because the underlying claims alleged that the insured 2014 Tressler LLP Personal and Advertising Injury Liability Coverage 12

13 intentionally and knowingly interfered with the claimant s business relationship with a thirdparty. Accordingly, the court found that insurer did not owe any duty to defend or indemnify. In Air Engineering, Inc. v. Industrial Air Power, LLC, 828 N.W.2d 565 (Wis. Ct. App. Jan. 3, 2013) (applying Wisconsin law), the insured was sued for trade secret misappropriation, breach of contract, breach of fiduciary duty and unjust enrichment for allegedly using the same website source code and content as found on the claimant s website and for misappropriating an Internet Advertising System. The court determined that the underlying suit alleged the use of another s advertising idea offense. The court found that the knowing violation exclusion did not apply to preclude a defense obligation because the underlying suit included claims for trade secret misappropriation, breach of fiduciary duty and unjust enrichment, which do not require a showing of actual knowledge or intent. Accordingly, the court found that the insurer had a duty to defend. In American Economy Ins. Co. v. Haley Mansion, Inc., No , 2013 Ill. App. Unpub. Lexis 836 (Ill. App. Ct. Apr. 23, 2013) (unpublished) (applying Illinois law), the insured was sued by a former employee for defamation, false light, sexual harassment, retaliatory discharge, retaliation and violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act. The insured allegedly told certain third parties that the claimant was mentally unstable, incompetent, untrustworthy, engaged in criminal activity and was a dishonorable woman. The insured allegedly made these statements either knowing the statements to be false or with reckless disregard as to their falsity. The insurer argued that the knowing violation and knowledge of falsity exclusions precluded any personal and advertising injury liability coverage for the insured. The court disagreed, finding that the exclusions did not preclude a defense obligation, because the allegations of recklessness suggested that the insured made the defamatory statements without knowledge of their falsity. Accordingly, the court held that the insurer owed a duty to defend. In Grange Ins. Assoc. v. Roberts, No I, 2013 Wash. App. Lexis 2550 (Wash. App. Ct. Oct. 28, 2013) (applying Washington law), the insured was sued for making false statements and false accusations and for badmouthing the claimants. Because the underlying claim did not seek recovery for damages based on a claim for defamation, the court questioned whether the complaint adequately alleged a claim for defamation. Nonetheless, even assuming that a defamation claim was sufficiently alleged, the court found that the knowing violation and knowledge of falsity exclusions applied to preclude coverage because the complaint alleged that the insured only committed certain intentional and deliberate wrongful conduct. Therefore, the court found that the insurer did not owe any defense obligation. (b) Knowing Publication Of Falsehoods In State Auto Prop. & Cas. Ins. Co. v. Lagrotta, 529 Fed. Appx. 271 (3d Cir. June 26, 2013) (applying Pennsylvania law), the insured, a member of the Pennsylvania House of Representatives, faced claims of tortious interference with contract and prospective business relations arising out of press releases issued by the congressman s office stating that the 13 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

14 claimant had relations with organized crime. It was alleged that as a result, the state health department rescinded approval of the sale of a nursing home to the claimant. The statements in the press release were allegedly made with malice, the intent to harm the claimant, and to convince the county not to consummate the sale. Based on the foregoing, the Third Circuit held that the knowing violation and knowledge of falsity exclusions precluded a duty to defend and indemnify the congressman. The court rejected the insured s argument that the exclusions did not apply because there were allegations of recklessness, reasoning that recklessness is a mere legal conclusion while the facts in the complaint alleged an intent to harm. In Association Cas. Ins. Co. v. Major Mart, Inc., No. 1:12-cv-022, 2013 U.S. Dist. Lexis (N.D. Miss. July 8, 2013) (applying Mississippi law), the insureds were sued for beach of the covenant of good faith and fair dealing, slander, defamation, tortious interference with business relationship, and conversion. The claim alleged that the insured engaged in guerilla warfare designed to ruin the claimant after a dispute arose over the pricing of beer products sold by the claimant. The claim alleged that the insureds told customers that the claimant was distributing bad or stale beer, and that such slanderous and defamatory statements were made intentionally, recklessly or negligently. The court found that the knowing violation and knowledge of falsity exclusions did not apply to preclude a defense obligation because of the potential that the complained of statements were made without knowledge of their falsity or that statements would violate the rights of another. Therefore, the court found that the insurer owed a duty to defend. In Cincinnati Ins. Co. v. Gage Center Dental Group, P.A., No KHV, 2013 U.S. Dist. Lexis (D. Kan. Nov. 1, 2013) (applying Kansas law), the insureds were sued for breach of fiduciary duty, defamation, intentional interference with business expectancies, intentional interference with contract, and conspiracy to defame and slander. The court first found that the underlying claims implicated the disparagement offense in the definition of personal and advertising injury. The court then found that the knowledge of falsity exclusion did not apply to preclude liability coverage because testimony in the underlying suit indicated that the insureds did not know that their defamatory statements were false. Accordingly, the court found that the insurer owed a duty to defend. The insured in Erie Ins. Prop. & Cas. Co. v. Viewpoint, Inc., No. 5:12-cv-81, 2013 U.S. Dist. Lexis (N.D.W.V. Mar ) (applying West Virginia law), was alleged to have fraudulently induced a 71 year-old widow to sign a document which purportedly reinstituted an oil and gas lease on her property from 1963 for a significantly smaller sign-on bonus and royalties than were available on the open market. Based on these allegations the insured faced claims of civil conspiracy, outrage, unlawful-holding over, slander of title, negligence, and breach of implied covenant to diligently develop, produce and market. The court held that the knowing violation and knowledge of falsity exclusions precluded a duty to defend because the insured was alleged to have intentionally conspired with the other defendants to modify an expired lease so as to avoid paying a fair market price Tressler LLP Personal and Advertising Injury Liability Coverage 14

15 In Lexington Ins. Co. v. Tudor Ins. Co., No. 11-c-809, 2013 U.S. Dist. Lexis (E.D. Wis. Feb. 6, 2013) (applying Wisconsin law), the insured, Trek Bicycle Corp., had contractual relationships with cyclists Greg LeMond and Lance Armstrong, both of whom endorsed Trekbrand bicycles. Trek allegedly failed to protect LeMond s brand from defamatory statements made by Armstrong. It was also alleged that Trek failed to protect LeMond against Armstrong s disclosure of confidential arbitration statements made by LeMond and Armstrong s fabrication of an interview published in the USA Today. Trek also allegedly drafted fake consumer s expressing a negative reaction to the newspaper article. The court held that the knowledge of falsity exclusion did not preclude a duty to defend. While Trek allegedly failed to stop Armstrong from publishing false information about LeMond, the court found that the insured was not alleged to have published false information itself or to have directed Armstrong s publishing of false information, as required by the exclusion. In Stafford v. Jewelers Mut. Ins. Co., No. 3:12-cv-050, 2013 U.S. Dist. Lexis (S.D. Ohio Mar. 4, 2013) (applying Ohio law), the insured allegedly committed fraud by claiming to have shipped a 5.5 karat pink diamond that it sold to the claimant in a box that it knew did not contain the diamond. The court held that defense and indemnity were precluded by the knowledge of falsity exclusion because the insured was alleged to have known that its statements concerning the shipment of the pink diamond were false. In American Economy Ins. Co. v. Haley Mansion, Inc., No , 2013 Ill. App. Unpub. Lexis 836 (Ill. App. Ct. Apr. 23, 2013) (unpublished) (applying Illinois law), the insured was sued by a former employee for defamation, false light, sexual harassment, retaliatory discharge, retaliation and violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act. The insured allegedly told certain third parties that the claimant was mentally unstable, incompetent, untrustworthy, engaged in criminal activity and was a dishonorable woman. The insured allegedly made these statements either knowing the statements to be false or with reckless disregard as to their falsity. The insurer argued that the knowing violation and knowledge of falsity exclusions precluded any personal and advertising injury liability coverage for the insured. The court disagreed, finding that the exclusions did not preclude a defense obligation because the allegations of recklessness suggested that the insured made the defamatory statements without knowledge of their falsity. Accordingly, the court held that the insurer owed a duty to defend. In Grange Ins. Assoc. v. Roberts, No I, 2013 Wash. App. Lexis 2550 (Wash. App. Ct. Oct. 28, 2013) (applying Washington law), the insured was sued for making false statements and false accusations and for badmouthing the claimants. Because the underlying claim did not seek recovery for damages based on a claim for defamation, the court questioned whether the complaint adequately alleged a claim for defamation. Nonetheless, even assuming that a defamation claim was sufficiently alleged, the court found that the Knowing Violation of Another s Rights exclusion and the knowledge of falsity exclusion applied to preclude coverage because the complaint alleged that the insured only committed certain intentional and deliberate wrongful conduct. Therefore, the court found that the insurer did not owe any defense obligation. 15 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

16 (c) Publication Of Material Before Inception Of Policy In Encore Receivable Management, Inc. v. ACE Property & Cas. Ins. Co., No. 1:12-cv-297, 2013 U.S. Dist. Lexis (S.D. Ohio July 3, 2013) (applying Ohio law), the insureds were sued for recording the claimants telephone conversations without their consent. The claimants were various Hyundai customers. The recordings were not distributed to anyone aside from the insureds employees. The court first found that the personal and advertising injury offense of oral or written publication of material that violates a person s right of privacy was implicated. The court also found that the prior publication exclusion did not apply to preclude coverage because the recording of each claimant s conversation was a separate publication of material, and some claimants were alleged to have first telephoned the insureds during the policy period. Therefore, the court found that the insurer owed a duty to defend. In Hanover Ins. Co. v. Urban Outfitters, No. 12-cv-3961, 2013 U.S. Dist. Lexis (E.D. Pa. Aug. 19, 2013) (applying Pennsylvania law), the insured was sued for trademark infringement and disparagement of the claimant s products, based on the insured s unauthorized use of the trademarked Navajo and Navaho names in the insured s sale of its products in its catalogs and in its stores. The underlying claim alleged that the insured s first use of the trademarked names occurred in March 2009, which was prior to the July 7, 2010 inception date of the subject policy. The court determined that the prior publication exclusion applied to preclude personal and advertising injury liability coverage, as the complained of publication first took place before the inception of the policy. The court additionally determined that it was immaterial that the insured advertised other products using the Navajo and Navaho names during the policy period, because such later publications did not contain any new matter or substantively different content. Therefore, the court held that the insurer did not owe any defense or indemnity obligation. In JAR Laboratories LLC v. Great American E&S Ins. Co., No. 12-cv-7134, 2013 U.S. Dist. Lexis (N.D. Ill. May 10, 2013) (applying Illinois law), the insured was alleged to have falsely advertised its over-the-counter pain-relief patch, LidoPatch, to be as effective as the claimant s prescription only pain-relief patch, Lidoderm. During the policy period, the insured was alleged to have falsely stated that its LidoPatch product contained the same active ingredient as the leading prescription patch and, like the prescription brand, offered 24-hour relief. The court held that the statements set forth a potential claim for implied disparagement. The complaint also alleged that the insured made representations to potential customers that its product was an over-the-counter version of Lidocaine before the policy period, but did not specifically identify any such statements. The court held that the prior publication exclusion did not preclude a duty to defend because the only disparaging statements identified specifically in the complaint were made during the policy period. Further, there were no allegations that the covered statements were merely the continuation of a defamatory scheme that began before coverage incepted or that the statements made during the policy period were republications of pre-policy period statements Tressler LLP Personal and Advertising Injury Liability Coverage 16

17 (d) Criminal Acts In Indiana Ins. Co. v. Brown Packing Co., No , 2013 Ill. App. Unpub. Lexis 988 (Ill. App. Ct. May 10, 2013) (applying Illinois law) (unpublished), the federal government filed a criminal information against the insured, which was engaged in the business of producing meat for human consumption. The federal government accused the insured of felony conspiracy to commit mail and wire fraud, by unlawfully implanting veal calves with hormones and steroids, concealing that fact from customers, competitors and the federal government, and making fraudulent claims that its veal does not contain steroids. Thereafter, the insured plead guilty to the charges and agreed to a civil forfeiture of $2 million, which represented the proceeds obtained by the insured from the sale of the illegal hormone-enhanced veal. The court found that the criminal information did not allege the advertising injury offenses of disparagement or violation of a person s right of privacy. The court also found that the criminal acts exclusion applied to preclude any liability coverage for the insured, because the insured allegedly engaged in criminal activities, not innocent or accidental advertising injury. Accordingly, the court determined that the insurer did not owe any defense or indemnity obligation to the insured. In Encore Receivable Management, Inc. v. ACE Prop. & Cas. Ins. Co., No. 1:12-cv-297, 2013 U.S. Dist. Lexis (S.D. Ohio July 3, 2013) (applying Ohio law), the insureds were sued for recording the claimants telephone conversations without their consent. The claimants were various Hyundai customers. The insureds were in the business of operating customer call centers for clients. The court first found that the personal and advertising injury offense of oral or written publication of material that violates a person s right of privacy was implicated. The court also found that the criminal acts exclusion did not apply to preclude coverage because there had been no finding in the underlying suits that the insureds committed a criminal act. Therefore, the court found that the insurer owed a duty to defend. (e) Contractual Liability In Encore Receivable Management, Inc. v. ACE Prop. & Cas. Ins. Co., No. 1:12-cv-297, 2013 U.S. Dist. Lexis (S.D. Ohio July 3, 2013) (applying Ohio law), the insureds were sued for recording the claimants telephone conversations without their consent. The claimants were various Hyundai customers. The insureds were in the business of operating customer call centers for clients. The court first found that the personal and advertising injury offense of oral or written publication of material that violates a person s right of privacy was implicated. The court also found that the contractual liability exclusion did not apply to preclude coverage because the court determined that the insured would have been liable for its operation of the call centers even absent its agreement with Hyundai. Therefore, the court found that the insurer owed a duty to defend. At issue in Columbia Cas. Co. v. HIAR Holding, LLC, 411 S.W.3d 258 (Mo. 2013) (applying Missouri law), was whether an insurer was obligated to defend and indemnify its insured for claims that it violated the Telephone Consumer Protection Act ( TCPA ) by sending unsolicited 17 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

18 facsimile advertisements. The Missouri Supreme Court held that the TCPA claims implicated the policy s advertising injury coverage under the right of privacy offense and sought damages as contemplated by the policies. The court went on to reject the insurer s argument that the contractual liability exclusion precluded coverage for the $5 million settlement on the theory that only a small percentage of potential claims were submitted, making the settlement gratuitous in nature. (f) Breach Of Contract In Association Cas. Ins. Co. v. Major Mart, Inc., No. 1:12-cv-022, 2013 U.S. Dist. Lexis (N.D. Miss. July 8, 2013) (applying Mississippi law), the insureds were sued for beach of the covenant of good faith and fair dealing, slander, defamation, tortious interference with business relationship, and conversion. The claim alleged that the insured engaged in guerilla warfare designed to ruin the claimant after a dispute arose over the pricing of beer products sold by the claimant. The claim alleged the claimant regularly placed price tags on its products, and that a disagreement between the insureds and the claimant arose over the price tags. However, the claim also alleged that the pricing of the claimants beer products was undertaken as a service to the customers, and not as a contractual obligation between the claimant and the insureds. Therefore, the court found that the breach of contract exclusion did not apply to preclude coverage and that the insurer owed a duty to defend. In Assurance Co. of America v. Waldman, No. 1:13-cv-179, 2013 U.S. Dist. Lexis (S.D. Ohio Dec. 18, 2013) (applying Ohio law), the dissolution of the insured, an accounting firm, resulted in a myriad of litigation between its former partners. In one of the suits, two of the partners alleged that another, Waldman, disparaged them in written correspondence to the IRS. The court first noted that the complaint alleged claims that likely fell within the disparagement and right of privacy offenses in the personal and advertising injury coverage. However, the court went on to find that the knowing violation and breach of contract exclusions precluded any defense or indemnity obligation. The court reasoned that the complaint alleged that Waldman knowingly disclosed information designated as confidential to the IRS in bad faith. The complaint also contained several breach of contract counts which alleged that Waldman s conduct violated the non-disparagement clause of the dissolution settlement agreement entered into by the partners in another suit. In Lexington Ins. Co. v. Tudor Ins. Co., No. 11-c-809, 2013 U.S. Dist. Lexis (E.D. Wis. Feb. 6, 2013) (applying Wisconsin law), the insured, Trek Bicycle Corp., had contractual relationships with cyclists Greg LeMond and Lance Armstrong, both of whom endorsed and were spokespersons for Trek-brand bicycles. Trek allegedly failed to protect LeMond s brand from defamatory statements made by Lance Armstrong. Trek also allegedly failed to protect LeMond against Armstrong s disclosure of confidential arbitration statements made by LeMond and a fake interview orchestrated by Armstrong and published in USA Today. The court held that the breach of contract exclusion did not preclude a duty to defend because the allegations falling with the disparagement and right of privacy offenses did not arise out of a breach of contract. The court reasoned that the opposite was true Trek s breach of its 2014 Tressler LLP Personal and Advertising Injury Liability Coverage 18

19 contract with LeMond allegedly arose out of its failure to protect LeMond against the disparaging statements made by Armstrong. In Liberty Corp. Capital Ltd. v. Security Safe Outlet, Inc., No. 5:12-cv-178, 2013 U.S. Dist. Lexis (E.D. Ky. Mar. 27, 2013) (applying Kentucky law), the insured sought coverage for misappropriation of trade secrets, breach of contract, violations of the Lanham Act, and other claims. The misappropriation claim alleged that a former employee of the claimant stole the claimant s client lists and went to work for the insured. The insured then allegedly began to e- mail the claimant s customers using the claimant s confidential client information. The court held that the breach of contract exclusion precluded coverage for the misappropriation claim because the claimant s former employee was alleged to have breached a non-compete agreement by working for the insured. The court noted that it did not matter that the insured was not a party to the contract and that a breach of contract claim was not filed against the employee. The Lanham Act claim was based on the insured s alleged use of the claimant s Buds Gun Shop trademark in conjunction with its online sale of firearms. The insured and the claimant had entered into a licensing agreement under which the insured was allowed to use the mark, but only with respect to the sale of guns at a single retail store. The court held that the Lanham Act claim was also precluded from coverage by the breach of contract exclusion because the infringement was alleged to have arisen out of the breach of the parties licensing agreement. In U.S. Fire Ins. Co. v. Cyanotech Corp., No , 2013 U.S. Dist. Lexis (D. Haw. Oct. 23, 2013) (applying Hawaii law), the insured was sued for patent infringement with respect to a certain drug compound called astaxanthin, tortious interference with a business relationship, and breach of confidentiality agreement. The underlying patent infringement claim alleged, in part, that the insured advertised certain products that infringed the claimants patent. The court first found that the underlying claims did not allege any of the personal and advertising injury offenses. Additionally, the court found that even if the underlying claims alleged personal and advertising injury, the breach of contract exclusion applied to preclude coverage because the underlying claims sought recovery for the insured s alleged breach of a confidentiality agreement and, that by such breach, the insured was allegedly able to interfere with the claimant s business relationship with a third-party. Accordingly, the court found that insurer did not owe any duty to defend or indemnify. In John T. Doyle Trust v. Country Mut. Ins. Co., No , 2013 Ill. App. Unpub. Lexis 2143 (Ill. App. Ct. Sept. 25, 2013) (applying Illinois law), the insured was sued for violation of the Illinois Forcible Entry and Detainer Act for evicting the claimant from premises leased by the insured to the claimant and disposing of the claimant s personal property. The court first found that the claim alleged the personal and advertising injury offense of wrongful eviction. The court also found the breach of contract exclusion to be ambiguous under the facts of the case and construed the exclusion against the insurer. Therefore, the court determined that the insurer owed a duty to defend. 19 Personal and Advertising Injury Liability Coverage 2014 Tressler LLP

20 In Natural Organics, Inc. v. OneBeacon America Ins. Co., 959 N.Y.S.2d 204 (N.Y. Jan. 16, 2013), the insured was sued for unfair competition under the Lanham Act. The underlying complaint alleged that the insured, after wrongfully terminating an exclusive distributorship agreement with the claimant, issued a press release announcing that a third-party was the exclusive distributor of the insured s products. The complaint alleged that the press release caused confusion, mistake and deception as to the claimant s distribution of the insured s products. The court determined that the allegations constituted the written publication of material that disparages a person s or organization s goods, products or services, because the press release could be construed as implying that the claimant s inventory of the insured s products was unauthorized. The court held that the breach of contract exclusion did not apply because the product disparagement claim did not necessarily arise out of the insured s alleged breach of the exclusive distributorship agreement. The court noted that the claimant can establish a product disparagement claim under the Lanham Act by relying on the press release and without reference to the exclusive distributorship agreement. Accordingly, the court found that the insurer had a duty to defend. (g) Quality Of Goods In Dollar Phone Corp. v. St. Paul Fire and Marine Ins. Co., 12-cv-1770, 2013 U.S. App. Lexis 5065 (2d Cir. Mar. 14, 2013) (applying New York law), the insured was alleged to have advertised calling cards that offered fewer minutes than advertised. The court held that the allegations clearly fell within the policy s exclusion for advertising injury that results from the failure of your products, your work, or your completed work to conform with advertised quality or performance. The court held that, as a result, the insurer had no duty to defend or indemnify. In JAR Laboratories LLC v. Great American E&S Ins. Co., No. 12-cv-7134, 2013 U.S. Dist. Lexis (N.D. Ill. May 10, 2013) (applying Illinois law), the insured faced claims of false advertising, unfair competition, and violations of various states consumer protection statutes. The claims were based on allegations that it falsely advertised its over-the-counter pain-relief patch, LidoPatch, to be as effective as the claimant s prescription only pain-relief patch, Lidoderm. The insured s allegedly false statements included that its LidoPatch product contained the same active ingredient as the leading prescription patch and, like the prescription brand, offers 24-hour relief. The court held that the allegations implicated the policy s disparagement offense for purposes of a duty to defend. The court also held that the quality of goods exclusion did not preclude coverage because the insured s disparaging statements concerned the quality of the claimant s products, not its own. In Tria Beauty, Inc. v. National Fire Ins. Co. of Hartford, No. C , 2013 U.S. Dist. Lexis (N.D. Cal. May 20, 2013) (applying California law), the insured was sued by its competitor for false advertising, unfair competition, and trademark infringement based on false and misleading statements it was alleged to have made about its own products. The statements included that its hair removal product was the equivalent to professional laser hair removal and was the first and only at-home laser hair removal cleared by the FDA, and that its acne Tressler LLP Personal and Advertising Injury Liability Coverage 20

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