Speaking Of . . . Insurance Coverage - Is There Coverage For Alleged “Disparagement” Of Another Company’s Product? One California Appeals Court Says Yes, Another One Says No, On Same Policy Language

by Downs Rachlin Martin PLLC

We previously discussed the troubling issues of:  a) whether your company’s insurance policy(ies) actually provides coverage for claims of IP infringement, and b) which of your policies is the one(s) you should be looking to for possible coverage when you get sued for infringement.

And for a great discussion of insurance coverage for IP infringement claims generally under the “Advertising Injury” clause of a standard commercial general liability policy, see Dan Graham’s article in the DRI insurance coverage newsletter.

This week we’ll get more specific:  a claim that was found by one California appeals court to be covered under a standard commercial general liability policy, and one that was found by a different division of the same appeals court not to be covered – both under the very same “advertising injury” clause of the policy.


In Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc., Charlotte Russe, a clothing retailer, requested its insurance company, Travelers, to defend it in a lawsuit brought by Versatile Entertainment, Inc. (Versatile v. Charlotte Russe – the “underlying lawsuit”).  Versatile is a manufacturer of “premium” clothing marketed under the brand “People’s Liberation.”  In the underlying lawsuit, Versatile alleged that Charlotte Russe had harmed the People’s Liberation “brand” of “high-end” and high-priced clothing by offering Versatile’s clothing for sale at deep discounts and at “close-out” prices, amounting to a “fire sale.”

Charlotte Russe’s request that Travelers defend it in the underlying lawsuit was based on the “Advertising Injury” clause in the Travelers’ policy issued to Charlotte Russe.  Travelers denied Charlotte Russe’s request.  Because of the disagreement between Charlotte Russe and Travelers, Travelers filed a separate lawsuit requesting a judicial determination of whether it was required to provide coverage to Charlotte Russe (Travelers v. Charlotte Russe – the “coverage lawsuit”).

Travelers Policy Defines Advertising Injury

In the Travelers policy, “Advertising Injury” was defined in several ways.  One of the definition of “Advertising injury” was,

“injury . . . arising out of . . . material that . . . disparages a person’s or organization’s goods, products, or services.”

In the coverage lawsuit, Travelers contended that Versatile’s allegations against Charlotte Russe in the underlying lawsuit did not amount to a claim that Charlotte Russe had “disparaged” the People’s Liberation brand.  A retailer’s mere reduction of a product’s price is not, argued Travelers, a disparagement of that product.  In order to satisfy the definition of “disparagement” under the policy, Travelers argued, Versatile would have to be alleging the elements of the tort of trade libel under California law against Charlotte Russe.

Trade Libel Not A Requirement for Committing Disparagement

Trade libel, in turn, requires the publication of an injurious false statement about a company or its goods or services.  The trial court in the coverage lawsuit agreed with Travelers’ position on the meaning of the term “disparagement” and granted summary judgment in its favor – meaning that Travelers had no obligation to defend Charlotte Russe in the underlying lawsuit.  Charlotte Russe appealed from this decision.

The California appeals court reversed, holding that Company A’s publication of an injurious false statement against Company B or Company B’s goods or services (i.e., the definition of trade libel) is not a requirement for establishing that Company A may have committed “disparagement” under the insurance policy.  In other words, reading the allegations in the underlying lawsuit, Charlotte Russe may have “disparaged” the People’s Liberation brand of clothing by implication, by selling the clothing at “fire sale” prices.  The gist of the underlying lawsuit, said the court, is that Versatile was accusing Charlotte Russe of impliedly telling the world that the People’s Liberation brand of clothing is not a premium, high-end line, which, according to Versatile, is false.  According to the court, that is disparagement.  Lastly, the court said that there was nothing in the language of Travelers’ policy that said the definition of “disparagement” is equal to the legal definition of trade libel.  Accordingly, the appeals court reversed the trial court, and held that Travelers was required to defend Charlotte Russe in the underlying lawsuit.  Travelers appealed this decision to the California Supreme Court, but its petition for appeal was denied.

Sister Appeals Court Comes to Opposite Conclusion

A little more than three months later, a different panel of the same California appeals court came to exactly the opposite conclusion in the case of Hartford Casualty Ins. Co. v. Swift Distribution, Inc.  In this case, the issue was whether Hartford had to defend its insured, Swift, in a lawsuit brought by Gary-Michael Dahl.  Dahl sells an item called the “Multi-Cart.”  Swift started advertising and selling an item called the “Ulti-Cart.”  Swift’s advertisements made no mention of Dahl or the “Multi-Cart.”  Dahl sued Swift for patent infringement, trademark infringement, unfair competition, trademark dilution, and misleading advertising (Dahl v. Swift – the “underlying lawsuit”).  Among other things, Dahl alleged that Swift’s advertisements for the Ulti-Cart “disparaged” Dahl’s Multi-Cart by implication.  Swift requested that its insurance company, Hartford, defend it in the lawsuit brought by Dahl.  Swift requested coverage under the “Advertising Injury” clause of the policy.

The definition of “Advertising Injury” in the Hartford policy was exactly the same as the definition in the Travelers policy in the Travelers v. Charlotte Russe case, above.  Hartford refused Swift’s request, arguing that Dahl’s allegations in the underlying lawsuit against Swift weren’t covered under the policy.  To settle the dispute – just as Travelers had done against Charlotte Russe – Hartford filed a coverage lawsuit against Swift.  That is, it sued Swift for a judicial determination of whether it had a duty to defend Swift in the underlying lawsuit.  While Hartford’s coverage lawsuit against Swift was pending, Dahl and Swift settled the underlying lawsuit.

In Hartford’s coverage lawsuit, Swift alleged that Dahl’s claims in the underlying lawsuit came within the definition of “Advertising Injury.”  The trial court ruled in Hartford’s favor, finding that, on the undisputed facts, which, in this case, were:

a) the allegations in Dahl’s complaint against Swift in the underlying lawsuit, and

b) the terms of the Hartford policy issued to Swift,

there was no “disparagement” by Swift.  Swift appealed.

Insurer Does Not Have to Provide Coverage

This time, the California appeals court – again, a different division of the very same appeals court that found coverage in the Travelers v. Charlotte Russe case – affirmed the trial court’s decision of no insurance coverage.  The appeals court here found that Dahl’s underlying lawsuit did make a variety of allegations that Dahl and its product, the Multi-Cart, were harmed by Swift’s infringements, by its unfair competition, and by its false and misleading advertising.  Nevertheless, the court found that Swift’s advertisements did not actually disparage – i.e., express an “injurious falsehood” about – Dahl or the Multi-Cart because the advertisements never mentioned Dahl or the Multi-Cart.

Swift then argued that in the underlying lawsuit Dahl had alleged that Swift’s advertisements referred to Dahl’s Multi-Cart by implication.  The court found that even if this were true, Swift’s advertisements mentioned only its own product, the Ulti-Cart.  Regardless of whether Swift’s conduct might constitute trademark infringement and unfair competition against Dahl and the Multi-cart, Swift’s advertisements did not disparage Dahl or the Multi-Cart.

Therefore, the appeals court held that, because Swift’s advertisements had not disparaged Dahl or the Multi-Cart, Dahl’s underlying lawsuit did not come within the Advertising Injury coverage clause of Hartford’s policy issued to Swift, and Hartford was not required to defend Swift in the underlying lawsuit.

Notably, the appeals court in Hartford v. Swift said that its sister court’s decision in Travelers v. Charlotte Russe was wrong.  It said that discounted pricing (which was the operative allegation in the Versatile v. Charlotte Russe lawsuit) is not “disparagement.”  It said that discounted pricing is not the same thing as the publication of an injurious false statement.  The language used by the Hartford v. Swift court in expressing its disagreement with its sister court is about as clear and strong as one finds in court opinions.

Swift has appealed the coverage case to the California Supreme Court, which has not yet decided whether it will hear the case.  I’m guessing the Supreme Court will take the case now that two California appeals courts have come to opposite results in interpreting the same clause in a standard insurance policy.


The lesson here is that claims against you or your client of patent infringement, trademark infringement, unfair competition, trademark dilution, and/or misleading advertising might not constitute “disparagement” under your insurance policy.  If you sell a product, especially one that competes with other similar products on the market, you need to purchase your insurance carefully, and look for policies that will cover you for the types of claims you might face:  infringement- and unfair competition-type claims by your competitors, and products liability-type claims by the purchasers of your product(s).

In the coming weeks and months, we’ll check the status of the appeal in the Hartford v. Swift case and have more to say on insurance coverage issues for intellectual property infringement claims.

Walter Judge is a litigation partner at Downs Rachlin Martin PLLC who blogs on intellectual property litigation topics

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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