Eighth Circuit Addresses Failure of Goods Exclusion

In its recent decision in Westfield Ins. Co. v. Robinson Outdoors, 2012 U.S. App. LEXIS 24642 (8^th Cir. Nov. 30, 2012), the United States Court of Appeals for the Eighth Circuit, applying Minnesota law, had occasion to consider a “failure of goods” exclusion in the context of the advertising injury coverage part under a general liability policy.

The insured, Robinson Outdoors, manufactured and sold hunting-related products that it claimed would mask the human scent.  Consumers brought several class actions against Robinson, claiming that the products did not work as advertised.   Robinson’s general liability insurer, Westfield, denied coverage on the basis of its policy’s exclusion applicable to liability “arising out of the failure of goods, products or services to conform with any statement of quality or performance made in [Robinson's] 'advertisement.”  Westfield was granted summary judgment by the United States District Court for the District of Minnesota, resulting in the appeal to the Eighth Circuit.

On appeal, Robinson asserted that the exclusion was ambiguous.  The Eighth Circuit rejected this argument, noting that neither Robinson nor the court itself could articulate a reasonable basis as to how the failure-to-conform exclusion could be subject to more than one interpretation.   As such, and because the underlying suits pertained to the alleged failure of Robinson’s products to mask the human scent as advertised, the court agreed that the exclusion unambiguously applied.  In so holding, the court also rejected Robinson’s assertion that the exclusion did not apply because at least some of the advertisements identified in the complaints were not related to the products’ ability to mask human scent.  The court rejected this distinction, explaining:

These allegations in the underlying lawsuits highlighted by Robinson merely provide a background to Robinson's misleading marketing tactics, not an individual or separate basis for a claim. The underlying lawsuits allege that Robinson misled consumers into buying hunting clothing that did not perform as it was advertised. The thrust of the consumers' claims was that Robinson sold hunting clothing that was advertised to eliminate human odor, but did not.

Eighth Circuit Addresses Personal Injury Offense of Malicious Prosecution

In its recent decision in Genesis Ins. Co. v. City of Council Bluffs, et al., 2012 U.S. App. LEXIS 9577 (8^thCir. May 11, 2012), the United States Court of Appeals for the Eighth Circuit, in a matter of first impression under Iowa law, considered when the tort of malicious prosecution occurs for the purpose of personal injury coverage under a general liability policy.

In 1977, underlying plaintiffs were arrested and convicted for the murder of a retired police officer.  Their convictions were vacated in 2003 based on evidence that the prosecution had withheld of exculpatory evidence.   Plaintiffs were released from prison and later brought suit against the City of Council Bluffs, the City’s Police Department, and certain police officers.  In addition to alleging civil rights violations, their suits alleged the tort of malicious prosecution.  The City tendered its defense to Genesis Insurance Company, its general liability carrier for the period January 1, 2002 to January 1, 2003 and for the renewal period January 1, 2003 through January 1, 2004.  Genesis disclaimed coverage on the basis that the alleged personal injury offense of malicious prosecution happened when plaintiffs were originally prosecuted, not when their convictions were later vacated.

The Eighth Circuit acknowledged that there was no controlling Iowa law on the issue of when the tort of malicious prosecution occurs for insurance coverage purposes.  Looking to case law from across the country, the court observed that “although there is no agreement on when the tort of malicious prosecution occurs for insurance coverage purposes, the clear majority of courts have held the tort occurs when the underlying criminal charges are filed.”  The court further noted that in Royal Indemnity Co. v. Werner, 979 F.2d 1299 (8^th Cir. 1992), the Eighth Circuit, in addressing the issue under Missouri law, held that a malicious prosecution claim accrues with the filing of suit.  The court found no meaningful reason why its decision in Royal Indemnity is inconsistent with Iowa law, explaining that under Iowa law, the occurrence happens when the claimant sustains damages, not when the act or omission causing the damage takes place.   Because a claimant is damaged upon the filing of a criminal complaint, observed the court, it necessarily followed that the occurrence happened at that time.

In reaching its decision, the court considered and rejected the insured’s argument that the Genesis policies were triggered based on allegations of “continuing misconduct and continuing personal injury” through the time underlying plaintiffs were released from prison.  The court refuted the contention that “the tort of malicious prosecution constitutes a continuing injury,” and concluded instead that a claim for malicious prosecution does not trigger multiple policies, but instead triggers only the policy in effect at the time the charges are filed.  

2d Circuit Holds No Duty to Defend Intellectual Property Claim

In its recent decision titled Feldman Law Group v. Liberty Mut. Ins. Co., 2012 U.S. App. LEXIS 7787 (2d Cir. Apr. 18, 2012), the United States Court of Appeals for the Second Circuit, applying Pennsylvania law, had occasion to consider whether a claim for copyright and trade dress infringement involving designer jewelry triggered coverage under a general liability policy as an advertising injury.

Feldman Law Group (“FLG”), as the assignee of the insured, The Hyman Companies, sued Liberty to recover its costs in defending Hyman in a suit brought by Van Cleef & Arpels Logistics, S.A.  The suit alleged that Hyman violated Van Cleef’s copyright and trade dress, specifically with respect to the design of certain jewelry.  Liberty had denied a duty to defend or indemnify Hyman on the basis that Van Cleef’s suit did not allege an advertising injury, since the complaint made no reference to “advertising,” defined by the Liberty policy as a “paid announcement that is broadcast or published in the print, broadcast or electronic media to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” The Southern District of New York held in Liberty’s favor on motion to dismiss.

On appeal, the Second Circuit agreed that the underlying suit contained no allegations that would qualify as an advertising injury offense, or that would even qualify as advertising in the first instance.  Rather, the suit related to Hyman’s efforts to reproduce, copy and imitate Van Cleef intellectual property, i.e., its jewelry designs.  The court specifically rejected FLG’s argument that the generic allegation in the complaint alleging that Hyman “offered [the jewelry] for sale and/or distributed copies of the [protected intellectual property]” constituted an advertising injury offense.  As the court explained:

FLG urges us to infer that the references to reproduction and distribution "by sale and other means" could refer to the placement of a "paid announcement" in the public media. Such references, however, are far too general to support the conclusion that Van Cleef's complaint encompassed an injury resulting from any paid advertisement by Hyman, when the complaint specifically and repeatedly refers only to Hyman's conduct in "designing" jewelry "that is confusingly similar" to Van Cleef's design, and "reproducing such design without authorization and distributing copies thereof," thus infringing its trade dress and copyright.  The factual allegations of the complaint thus specifically invoke Hyman's design, manufacture and sale of infringing goods, but nowhere discuss, allege or allude to any advertisement of those goods.

The court went on to note that even if the complaint could be construed as alleging advertisement, advertisement of misappropriated goods, in and of itself, does not constitute an advertising injury offense as defined by the Liberty policy.  For instance, Van Cleef did not allege that its intellectual property was misappropriated as a result of Hyman’s advertising.  Citing to the seminal Pennsylvania decision in Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 20 F. Supp. 2d 798, 803 (M.D. Pa. 1998), aff’d, 193 F.3d 742 (3d Cir. 1999), the court noted that “the advertisement, and not the product being advertised, must itself infringe the underlying plaintiff's rights.”  The court further rejected FLG’s argument that Hyman’s possible use of catalogues and circulars to advertise its jewelry constituted “advertising” as defined by the Liberty policy, which required a paid announcement in public media.  Circulars and catalogues, explained the court, did not fall within this definition.

7th Circuit Addresses Coverage for Alleged Antitrust Violation

In its recent decision Rose Acre Farms, Inc. v. Columbia Casualty Co., 2011 U.S. App. LEXIS 22063 (7^th Cir. Nov. 1, 2011), the United States Court of Appeals for the Seventh Circuit, applying Indiana law, had occasion to consider whether an insured was entitled to coverage under its general liability policies for alleged conspiracy to price fix.

The insured, Rose Acre, is one of the nation’s largest producers of eggs and was named as a defendant in a class action alleging violations of the Sherman Act for conspiracy to fix the price of eggs.  Rose Acre sought coverage under its general liability policies’ “personal and advertising injury” coverage for the offense of “use of another’s advertising idea in your ‘advertisement.’”  Specifically, Rose Acre claimed that it belonged to a trade association of egg producers that maintained a website advertising the benefits of free range chickens, which Rose Acre argued could be used to make customers believe that the high price of eggs “was the result not of a conspiracy among egg producers but instead of the chickens’ healthful and humane living conditions.”

Judge Posner, writing the opinion for the court, characterized Rose Acre’s theory as “convoluted,” particularly since the underlying suit contained no mention of Rose Acre’s advertising on any website.  More significantly, Judge Posner explained that even if the underlying suit could be read to allege that advertising was used as part of the antitrust conspiracy, the policies provided coverage only for the offense of misappropriation of another’s advertising idea.  That is the essence of an advertising injury, which the court explained, was not alleged in the underlying suit.  Rather, the underlying suit related to an alleged antitrust violation, which as Judge Posner wrote, is not within the contemplated coverage of a general liability policy:

Antitrust liability … is a major business risk, especially for one of the largest companies in a major market.  It is hardly likely that parties to an insurance contract would seek to cover such a serious risk indirectly through an “advertising injury” provision aimed at misappropriation and other intellectual-property torts.

Judge Posner further noted that the policies’ personal and advertising injury coverage contained exclusions applicable to knowing and criminal conduct, both of which necessarily are present in an alleged conspiracy to violate federal antitrust law. 

Eleventh Circuit Holds No Duty to Defend Credit Card Transaction Claim

In its recent decision in Creative Hospital Ventures, Inc. v. E.T. Limited, Inc., 2011 U.S. App. LEXIS 19990 (11^th Cir. Sept. 30, 2011), the United States Court of Appeals for the Eleventh Circuit, applying Florida law, addressed whether the issuance of a credit card receipt to a customer constitutes “publication” for the purpose of a general liability policy’s “personal and advertising injury” coverage.

The insured, ETL, was named as a defendant in a class action suit alleging that defendants violated the Fair and Accurate Credit Card Transaction Act (“FACTA”) by issuing credit card receipts to customers that revealed more than five digits of their credit card numbers.  ETL claimed that the underlying suit constituted the personal and advertising injury offense of “oral or written publication, in any manner, of material that violates a person’s right of privacy,” thus triggering a defense obligation under a policy issued by Essex Insurance Company.  Essex argued, and the federal district court agreed, that ETL’s issuance of a credit card receipt did not constitute “publication” as that term is used in a general liability policy.  Relying on the Florida Supreme Court decision in Penzer v. Transportation Ins. Co., 29 So. 3d 1000 (Fla. 2010), the lower court held that “publication” requires dissemination of information to the public rather than to the individual cardholder.

On appeal, the Eleventh Circuit agreed that the Penzer decision was determinative of what constitutes “publication” under Florida law.  Penzer involved an alleged violation of the Telephone Consumer Protection Act (“TCPA”) resulting from the insured’s transmittal of unsolicited facsimiles, or “blast faxes.”  Relying on a standard dictionary definition of the word, the Florida Supreme Court held that publication involves some act of communication or dissemination of information to the public at large.  This definition, explained the court, necessarily encompassed the act of faxing an advertisement to 24,000 people at the same time “because it constitutes a communication of information disseminated to the public and it is ‘the act or process of issuing copies … for general distribution to the public.’”  Penzer at 1005-06. 

With this definition in mind, the Eleventh Circuit held that distributing a credit card receipt to a customer is not “publication.”  Rather, the receipt “is a contemporaneous record of a private transaction between ETL and the customer, and ETL neither broadcasted nor disseminated the receipt or the credit card information to the general public.”  The court distinguished a credit card receipt from the blast-faxes in Penzer on the basis that plaintiffs in Penzer did not solicit the facsimiles whereas in the underlying class action, the plaintiffs initiated the purchase that generated a credit card receipt.  The court further rejected ETL’s argument that the use of the phrase “in any manner” as used in the defined offense of “oral or written publication” expanded the definition of “publication” to include credit card receipts.  As the court explained, the phrase “‘in any manner’ merely expands the categories of publication (such as e-mail, handwritten letters, and, perhaps, ‘blast-faxes’) covered by the Policy” but did not dispense with the requirement that the publication itself be directed to the public at large.