On June 12, 2014, the California Supreme Court issued its decision in the closely watched case of Hartford Casualty Insurance v. Swift Distribution, Inc., S207172. I reported on the Court of Appeals decision last year on this blog in the post "California Supreme Court to Decide Scope of Implied Disparagement; Implications for Coverage in IP and False Advertising Cases" and related article "California To Draw The Lines In Disparagement Liability".
The Court affirmed the Court of Appeals ruling that an insurer did not have a duty to defend its insured against allegations that it had infringed a competitor’s trademark and patents by producing and selling a similar looking music equipment cart with a very similar name (“Multi-Cart” vs. “Ulti-Cart”). Id. The insured argued that there was a potential for covered damages, and hence a duty to defend, because the underlying complaint alleged facts supporting a claim of implied disparagement, and its general liability policy covered damages because of the publication of material that “disparages a person’s or organization’s goods, products or services.” The Court found no potential for liability based on disparagement, either express or implied, reasoning that the insured was not alleged to have identified the competitor or its product, or to have “necessarily referred to and derogated” the claimant’s product.
In ruling against the insured, the Court clarified the circumstances under which one may be found to have impliedly disparaged a competitor or its goods, products or services.
The Court held that allegations that the insured had infringed a competitor’s trademark and patents and engaged in unfair competition by producing and selling a similar looking music equipment cart with a very similar name (“Multi-Cart” vs. “Ulti-Cart”) did not support a claim of disparagement. The court found no potential for liability based on disparagement, either express or implied, reasoning that the insured was not alleged to have identified the competitor or its product, or to have suggested that the insured’s product was superior to that of the competitor. Id.
As I explained in my prior post, this case was not about the coverage afforded by the insured’s general liability policy. That was undisputed – the “personal and advertising injury” coverage afforded by general liability policies usually includes disparagement. Rather, the case was about the facts a plaintiff must allege to support a claim of disparagement. The case is highly relevant to insurance practitioners because IP and unfair competition lawsuits involve facts that suggest the possibility of disparagement.