A commercial general liability policy’s “personal and advertising” coverage for “disparagement” was not triggered where the insured’s advertisements did not specifically refer to and clearly derogate the claimant’s products. ( Hartford Cas. Ins. Co. v. Swift Distribution, Inc. (2014) 2014 WL 2609753)
Facts
Gary-Michael Dahl (Dahl) manufactures and sells a collapsible cart called the “Multi-Cart,” which is used to move music, sound and video equipment. Dahl owns a patent for the collapsible cart design, as well as a trademark for the “Multi-Cart” name.
Swift Distribution, Inc. dba Ultimate Support Systems (Swift) manufactures and sells a competing product known as the “Ulti-Cart.”
Dahl filed a federal court lawsuit against Swift, alleging that Swift was impermissibly manufacturing, marketing and selling the “Ulti-Cart,” thus infringing patents and trademarks for Dahl’s “Multi-Cart.” Dahl’s complaint attached copies of Swift’s advertisements, which mentioned Swift’s Ulti-Cart but did not mention Dahl’s Multi-Cart. In addition, Swift’s catalog stated that Swift “designs and builds innovative, superior products” and that Swift provides “unique support solutions that are crafted with unparalleled innovation and quality and accompanied by superior customer service.”
Swift tendered the defense of the lawsuit to its general liability insurer, Hartford Casualty Insurance Company (Hartford). The Hartford policy covered Swift for various “personal and advertising” offenses, including “oral, 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 .” Hartford declined to defend Swift against Dahl’s lawsuit.
Hartford later filed a declaratory judgment action seeking a determination that it had no duty to defend or indemnify Swift against Dahl’s claims. The trial court and the Court of Appeal both ruled in favor of Hartford, finding that Dahl’s claims against Swift did not potentially trigger coverage under the “disparagement” provision contained in the “personal and advertising injury” section of the Hartford policy. At Swift’s request, the California Supreme Court agreed to review the case.
Holding
The California Supreme Court affirmed the declaratory judgment in favor of Hartford. The Supreme Court concluded that in the underlying lawsuit Dahl did not potentially seek damages from Swift because of “disparagement,” and thus Swift was not entitled to a defense under the “personal and advertising injury” provisions of the Hartford policy. According to the Supreme Court, a claim of “disparagement” requires a plaintiff to show “a false or misleading statement that (1) specifically refers to the plaintiff’s product or business and (2) clearly derogates that product or business. Each requirement must be satisfied by express mention or by clear implication.”
Here, even if Swift’s advertisement referring to its Ulti-Cart could reasonably imply a reference to Dahl’s Multi-Cart, Swift’s advertisement did not “disparage” Dahl or its product. Consumer confusion resulting from similarity may support a claim of patent infringement, trademark infringement or unfair competition, but does not by itself support a claim of “disparagement.” While Swift may have designed and named its Ulti-Cart to mimic Dahl’s Multi-Cart, that fact did not derogate or malign Dahl’s Multi-Cart.
Nor did it matter that Swift’s catalog used words like “unique,” “superior” and “unparalleled” to describe Swift’s company. According to the Supreme Court, Swift’s generalized claim of superiority was mere “puffing” and was not specific enough to “disparage” Dahl’s products. Otherwise, “almost any advertisement extolling the superior quality of a company or its products would be fodder for litigation.”
Comment
The Supreme Court’s holding in Swift clarifies and limits the scope of an insurer’s duty to defend an insured against a possible claim of “disparagement,” as that term is used in a commercial general liability policy. The Supreme Court noted that an insurer and its insured may contract for any broader coverage to which they mutually agree. Here, however, because the facts and pleadings were not sufficient to support a possible claim of disparagement, there was no duty to defend under the Hartford policy.
In the course of its opinion, the Supreme Court specifically disapproved the case of Travelers Property Casualty Co. of America v. Charlotte Russe, Inc.(2012) 207 Cal.App.4th 969. In Charlotte Russe, a California appellate court held that the personal injury offense of “disparagement” required an insurer to defend an insured against a suit alleging that the insured had improperly advertised the claimant’s products at severely discounted prices, thus potentially “disparaging” the claimant’s products. The Supreme Court disagreed with the theory of “disparagement” recognized in Charlotte Russe, i.e., that a price reduction could result in a disparagement of the claimant’s products. According to the Supreme Court, a mere reduction of price “may suggest any number of business motivations” and “does not clearly indicate that the seller believes the product is of poor quality.”