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The Second Circuit has ruled a claim alleging an "offer for
sale" infringed on a patent constitutes an advertising injury
sufficient to trigger a defense under commercial general liability
insurance. In High Point Design LLC v LM Insurance
Corporation, the plaintiff High Point brought a
declaratory-judgment action against Buyer's Direct, Inc. after
the latter directed High Point to cease-and-desist in the sale of
its Fuzzy Babba slippers. Buyer's Direct responded with a
counterclaim alleging trade dress infringement, claiming that High
Point's offers for sale in retail catalogs infringed on
Buyer's Direct's own slipper trade dress. Buyer's
Direct sought discovery of all advertising, marketing and
promotional materials related to High Point's fuzzy footwear to
substantiate its claims.
High Point tendered the counterclaim to its insurer, Liberty
Mutual, for a defense and coverage. Liberty denied the claim based
on the policy's trademark-infringement exclusion. High Point
brought suit seeking a declaration of the parties' rights under
the policies. On High Point's motions for summary judgment, the
district court ruled that High Point was entitled to coverage
because the counterclaim did not fall into the
trademark-infringement exclusion and was a covered loss under the
policy's advertising injury coverage. Following the ruling, the
parties entered into a damages stipulation based on the date the
claim was tendered to Liberty.
On appeal, the Second Circuit affirmed in part. Judge Rosemary
Pooler, writing for the panel, agreed that the counterclaim did not
come within the "convoluted" language of the
trademark-infringement exclusion. The panel also held that an
"offer for sale" constituted an advertising injury under
the policy. "Indeed," held the court, "the purposes
of most advertising is to 'offer for sale' various goods
and services." Thus, it was clear to the court that the
counterclaim alleging trade dress infringement in the
"offering for sale" was sufficient to trigger a defense
under the policy.
The court further held, however, that even if the counterclaims,
standing alone, did not place Liberty on notice of its duty to
defend, discovery demands in the underlying case seeking
information related to the paid advertisements place High
Point's advertising squarely at issue. This was sufficient for
the court since, under New York law, the duty to defend is not
limited to the four corners of the complaint, but is informed by
the underlying facts available to the insurer. Thus, relying on the
totality of information available, the court held that there was
the potential for High Point to be held liable for an advertising
injury, triggering the duty to defend. The Second Circuit
invalidated the damages stipulation, however, noting that it was
not until the insurer became cognizant of the additional
information supplied by Buyer's Direct's discovery requests
that the duty to defend arose.
High Point Design is an important decision for at least
three reasons. First, the decision is a reminder that claims
arising from the alleged misappropriation of intellectual property
may be covered under traditional general liability and umbrella
insurance policies even where the policy contains a seemingly
applicable intellectual property exclusion. Second, the decision
illustrates the significance that evidence extrinsic to the four
corners of the complaint can have when considering the duty to
defend in jurisdictions that permit consideration of such evidence.
Finally, the decision illustrates the importance of having all
claims evaluated by a coverage specialist or attorney to determine
whether a potential for coverage exists.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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