Disparate No Longer: California Supreme Court Resolves Split in Approach to Product Disparagement Coverage

by Nelson Brown & Co.

Over the past 10 years, there has been an increase in lawsuits between business competitors, with claims that one business is unfairly gaining a competitive advantage over the other. These cases, involving allegations of infringement of intellectual property rights, trade libel, false advertising and similar business torts, have spawned disputes over the scope of insurance coverage for such claims. One prominent and recent example is the coverage afforded under CGL policies for the enumerated offense of “disparagement.” In particular, must the allegedly offending company specifically disparage the claimant in its advertisements, or can it be done implicitly in order for the claim to be covered?

Addressing a recent split between lower-level courts, the California Supreme Court ruled that liability insurers need only defend product disparagement claims when there are allegations that the derogatory statement expressly mentions or clearly implicates the claimant’s product or business. Hartford Cas. Ins. Co. v. Swift Distribution, Inc. (Cal. S207172 June 12, 2014). In that case, Gary-Michael Dahl sued Swift in California federal court alleging that Swift’s manufacture and false and misleading advertisements of a multiuse cart called “Ulti-Cart,” designed to help musicians load and transport equipment, infringed on his patents and trademarks, diluted his trademark, and damaged his reputation and goodwill. The advertisements, however, did not specifically reference Dahl’s product, called “Multi Cart.”

Hartford, which issued a CGL policy to Swift, denied coverage, contending that the policy’s definition of “personal and advertising injury” – which included the disparagement of a person’s or organization’s goods, products or services – was not satisfied due to the absence of a specific statement allegedly disparaging the competitor’s goods. The Supreme Court agreed with Hartford, holding that while Swift’s similar product name and design may create confusion in the marketplace, it did not derogate Dahl’s product. The Court also rejected Swift’s contention that its catalog’s use of advertising puffery such as “superior” and “unique,” without mention of a competing product, constituted disparagement by reasonable implication for coverage purposes.

In upholding Hartford’s position, the high court in Swift disapproved of a conflicting appellate decision, Travelers Property Cas. Co. of America v. Charlotte Russe Holding, Inc. (207 Cal.App.4th 969 (2012). In that case, the appeals court held that allegations that the insured retailer’s reduction in price of the manufacturer’s premium apparel implied that the apparel was of inferior quality. The Supreme Court noted that the reduction in prices did not carry an implication clear enough to derogate the manufacturer’s product for purposes of a disparagement claim. The Court remarked that disparagement by “reasonable implication” requires more than a statement that may conceivably or plausibly be construed as derogatory to a specific product or business; there must be a clear or necessary inference.

Other courts in states such as Illinois, Texas and North Carolina have recently grappled with the issue of whether advertisements that may unfairly tout the superiority of a product in the marketplace without specifically targeting a competitor could give rise to a claim for commercial disparagement that falls within the scope of a CGL policy’s coverage. Given California courts’ reputation as bellwethers for insurance law issues, other jurisdictions are likely to look to the Swift decision for guidance in resolving these coverage disputes, particularly those where the jurisprudence is not as developed.

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.

© Nelson Brown & Co. | Attorney Advertising

Written by:

Nelson Brown & Co.

Nelson Brown & Co. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.