A general liability policy covering the personal injury offense of “disparagement” required an insurer to defend an insured against a suit alleging that the insured improperly sold the claimant’s products at severely discounted, “close-out” prices, thus diminishing the claimant’s brand and trademark. ( Travelers Property Casualty Company of America v. Charlotte Russe Holding, Inc. (2012) WL 2356477)
Facts
Versatile Entertainment, Inc. is a clothing manufacturer, and Charlotte Russe Holding, Inc. is a clothing retailer. In 2008, Versatile entered into a contract with Charlotte Russe pursuant to which Charlotte Russe agreed to become the exclusive sales outlet for Versatile’s “premium,” “high-end” brand of apparel. According to Versatile, Charlotte Russe promised to provide the investment and support necessary to promote the sale of Versatile’s brand in Charlotte Russe retail stores, but Charlotte Russe then failed to provide such investment and support. Evidently, Charlotte Russe ultimately found itself with large quantities of unsold Versatile apparel. Later, Charlotte Russe allegedly began a “fire sale” of Versatile’s apparel at severely discounted, “close-out” prices, thus allegedly violating the parties’ agreement and diminishing Versatile’s brand and trademark.
In response, Versatile sued Charlotte Russe for breach of contract, intentional misrepresentation and negligent misrepresentation. Versatile alleged among other things that Charlotte Russe’s sale of Versatile’s brand at severe discounts had resulted in damage to and diminution of Versatile’s brand and trademark.
Charlotte Russe, in turn, sought defense and indemnity from its general liability insurer, Travelers Property Casualty Company of America. The Travelers policy covered Charlotte Russe for various “personal injury” 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….” Travelers declined to defend Charlotte Russe against Versatile’s claims.
Travelers later sought a declaratory judgment that Travelers had no duty to defend Charlotte Russe in Versatile’s lawsuit. The trial court granted Travelers’ motion for summary judgment. Charlotte Russe appealed.
Holding
The Court of Appeal reversed. The appellate court reasoned that in the underlying action, Versatile alleged that Charlotte Russe had offered Versatile’s products for sale at severely discounted prices, resulting in damage to and diminution of Versatile’s brand and trademark. Although Versatile did not expressly allege that Charlotte Russe had disparaged Versatile’s products, a duty to defend could be triggered by “implied allegations” of disparaging statements. Irrespective of whether Versatile’s allegations suggested that Charlotte Russe was liable for the personal injury offense of “trade libel,” Versatile’s allegations clearly did suggest that Charlotte Russe was liable for the separate personal injury offense of “disparagement.” As such, Travelers was obligated to defend Charlotte Russe in the underlying action.
Comment
The appellate court found that Versatile potentially sought damages for “disparagement” because Versatile alleged that its goods were “premium” and “high-end,” and Charlotte Russe had published prices falsely implying that the goods did not have those characteristics. To our knowledge, this is the first time a court has found a potential for “disparagement” coverage based on allegations that an insured improperly offered a manufacturer’s goods for sale at discounted, “close-out” prices. We expect that Travelers will ask the California Supreme Court to either review this somewhat controversial decision, or at a minimum de-certify it as a published case.