Travelers Property Casualty Company of America v. Charlotte Russe Holding, Inc., et al.
Court of Appeal, Second District (July 13, 2012)
Personal injury coverage under most CGL policies provides coverage for claims alleging injury arising out of oral or written publications that slander, libel or disparage a person’s or organization’s goods, products or services. This case considered whether the allegations of an underlying complaint had to rise to the level of trade libel to merit coverage.
In 2008, Versatile, Inc. and its parent company, People’s Liberation, Inc. (“Versatile”), entered into an agreement with Charlotte Russe Holding, Inc. and various related entities (“Charlotte Russe”). Under the agreement, Charlotte Russe agreed to be the exclusive sales outlet for Versatile’s “People’s Liberation” brand of apparel, which included jeans and knits. According to the litigation filed by Versatile, the clothing line was “premium,” and “high end,” and they had invested millions of dollars developing the brand to associate it with high end apparel. Versatile alleged that Charlotte Russe had promised to provide the investment and support necessary “to promote the sale of premium brand denim and knit products” in order to encourage the purchase of the products at a higher price point. Versatile introduced evidence that despite this promise, Charlotte Russe subsequently began a “fire sale” of the People’s Liberation brand at “close-out” prices, and that it publicly displayed signs in store windows and on clothing racks that the People’s Liberation brand jeans were on sale, and they provided “written mark-downs” on clothing items, as much as 70 to 85 percent marked down. Versatile alleged causes of action for breach of contract, declaratory relief and fraudulent and negligent misrepresentation.
Charlotte Russe had two successive CGL policies that had been issued by Travelers Property Casualty Company of America from 2008 to 2010. Under both policies, coverage was provided for claims alleging 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, provided that claim is made or “suit” is brought by the person or organization that claims to have been slandered or libeled, or whose goods, products or services have allegedly been disparaged; . . .” Travelers brought a declaratory relief action, claiming that there was no coverage under the policy. Summary judgment was granted in its favor and Charlotte Russe appealed.
The Court of Appeal reversed, holding that there was the potential for coverage under the Travelers policy, and thus there was a duty to defend. The Court held that the critical question on appeal was whether Versatile’s claims against Charlotte Russe constitute allegations that Charlotte Russe disparaged its goods within the meaning of the coverage of the Travelers’ policies. If they did not, there was no potential for coverage, and Travelers had no duty to defend. However, if Versatile’s allegations could reasonably be interpreted to encompass claims of disparagement, then there was the potential for coverage, and therefore a duty to defend Charlotte Russe against the claims in the underlying litigation.
Here, Versatile’s pleadings alleged that the Charlotte Russe parties’ offering of the People’s Liberation brand goods at severely discounted prices resulted in “significant irreparable damage to and diminution of the People’s Liberation brand and trademark,” damaging its “marketability and salesability.” Further, Versatile alleged that Charlotte Russe’s actions related to marketing and marking down the prices implied that the People’s Liberation Goods were not “premium, high-end goods.” The Court held that this was enough to constitute a “disparagement” covered under the policy.
The Court disagreed with Travelers’ contention that “disparagement” in the insurance context refers to the tort of trade libel, and that here, Versatile had not pled and proven a false statement of fact by Charlotte Russe. The Court held that the disparagement alone, without an actual false statement, was sufficient to trigger coverage. Further, the Court said it could not rule out the possibility that Versatile’s pleadings could be understood to charge that the dramatic discounts and advertising of the same communicated to potential customers the implication–false, according to Versatile–that the products were not (or that Charlotte Russe did not believe them to be) premium high end goods. Arguably, a trade libel claim might survive under these theories.
Finally, the Court held that the policy’s personal injury coverage language did not require that the underlying action plead all “essential elements of trade libel tort. Indeed, the Court pointed out that coverage was provided alternatively for slander or libel or for disparagement, so the two could not be one and the same. Hence, the implication of disparagement allegedly committed by Charlotte Russe’s actions were sufficiently pled to trigger the duty to defend.
Summary judgment in favor of Travelers was reversed.
The alternative language in most policies for slander or libel or disparagement means that to trigger coverage under a typical CGL policy, an insured only has to show that the underlying action alleges one of these actions, not necessarily all elements of a trade libel cause of action.
For a copy of the complete decision see: