Insurance Coverage – Personal & Advertising Injury – Trade Disparagement


Hartford Casualty Insurance Co. v Swift Distribution, Inc.

California Supreme Court (June 12, 2014)

Commercial liability policies provide coverage for “personal and advertising injury.”  This term typically includes coverage for claims involving trade disparagement of a competing business or product.  This case considered whether claims that did not specifically refer to the plaintiff’s product or business could still amount to trade disparagement and afford coverage to the insured defendant.
Hartford Casualty Insurance Company issued a commercial general liability policy to Swift Distribution, Inc., doing business as “Ultimate Support Systems.”  It manufactured a product called the “Ulti-Cart,” a multi-use cart marketed to help musicians load and transport equipment.  Gary Dahl held patents on a similar product, called the “Multi-Cart,” which he had sold commercially since 1997.  In 2010, Dahl filed an action against Swift.  He alleged that Swift’s advertising was false and misleading and was likely to cause consumer confusion or mistake as to “the affiliation, connection, or association” of the two parties.  He also alleged unfair competition, breach of contract, and claims based on violation of two non-disclosure statements.  The complaint attached two of Swift’s advertisements, neither of which named the “Multi-Cart” or any other product.
Swift tendered defense of the suit to Hartford under the personal and advertising injury coverage in the policy.  The policy defined “personal and advertising injury” in pertinent part as an injury “arising out of…[o]ral, 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.”  The policy did not provide a definition for “disparages.”  Hartford denied any duty to defend or indemnify, arguing that there could be no disparagement in the absence of a specific statement about a competitor’s goods.  Hartford filed a declaratory relief complaint seeking a determination that it had no duty to defend or indemnify.  Hartford and Swift each filed motions for summary judgment, and the superior court granted Hartford’s motion, finding that there was no duty to defend or indemnify.  Swift appealed, and the Court of Appeal confirmed the trial court’s ruling that there was no possible covered “disparagement” under the terms of the policy.  Swift appealed to the California Supreme Court. 
The Supreme Court affirmed the granting of summary judgment in favor of Hartford.  The Court noted that disparagement emerged from the common law tort doctrine of slander of title.  Under the Restatement Second of Torts, “a statement is disparaging if it is understood to cast doubt upon the quality of another’s land, chattels or intangible things…”  (Emphasis added).   The Supreme Court noted that California case law has understood disparagement, for purposes of commercial liability insurance, to mean a knowingly false or misleading publication that derogates another’s property or business and results in special damages. 
The Supreme Court held that in evaluating whether a covered claim of disparagement has been alleged, there are two distinct but specifically related requirements.  A false or misleading statement (1) must specifically refer to the plaintiff’s product or business, and (2) it must clearly derogate that product or business.  Each requirement must be satisfied by express mention or by clear implication.  Clear implication would be satisfied where there was a publication of claims such as being the “only” producer of a certain kind of software, or the “only” owner of a trademark.  In such situations, the implication is clear enough to amount to “specific reference” to satisfy the standard. 
The Court recognized that the specificity requirement significantly limited the type of statements that might constitute disparagement, especially since advertisements and promotional materials often avoid express mention of their competition.  However, the Court noted that there were other potential bases for liability (e.g. patent or trademark infringement or false advertising or unfair competition) for statements that did not rise to the level of trade disparagement. 
Turning to the facts of the case, the Court denied that the mere use of the name “Ulti-cart” reasonably implied a reference to Dahl’s “Multi-cart.”  The Court held that even if the “Ulti-cart” name had been developed to mimic the “Multi-cart,” it did not derogate or malign the “Multi-cart” in any way.”  While such action might support a claim of patent or trade infringement, it did not by itself support a claim of disparagement. 
Likewise, the Court was not persuaded that language in Swift’s catalogues referring to the “Ulti-cart” as “innovative,” “unique,” “superior” and “unparalleled” was sufficient to support a claim for disparagement, nor did Swift’s use of the phrase “patent-pending.”  None of these statements specifically called into question Dahl’s proprietary rights to his product, and did not disparage his product.   Were the Court to rule otherwise, almost any advertisement extolling the superior quality of a product or company would be “fodder for litigation.” 
The Court held that there were insufficient facts pled in Dahl’s complaint to amount to a covered (or potentially covered) claim of trade disparagement under the Hartford policy.  Summary judgment was affirmed.
The Supreme Court recognized the important purposes of commercial speech, and has held that specificity requirements serve to narrow the range of publications that may rise to the level of a legally actionable and injurious falsehood.  To be covered under a personal and advertising injury policy, such claims must specifically refer to and derogate the plaintiff’s product or business.
For a copy of the complete decision, see:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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