Farella Braun + Martel LLP: California Supreme Court to Decide Scope of Implied Disparagement; Implications for Coverage in IP and False Advertising Cases

    By Tyler Gerking, Partner, Farella Braun + Martel LLP

The California Supreme Court has granted review of the Court of Appeal's decision in Hartford Casualty Insurance Company v. Swift Distribution, Inc., 210 Cal. App. 4th 915 (2d Dist. Ct. App. Oct. 29, 2012), [enhanced version available to lexis.com subscribers], review granted 152 Cal. Rptr. 3d 420 (Feb. 13, 2013). Swift will resolve a hot debate about the scope of implied disparagement liability under California law. The result likely will determine whether insurers must defend a variety of lawsuits involving allegations of intellectual property infringement, unfair competition and false advertising.

The Court of Appeal in Swift held that an insurer did not have a duty to defend its insured against allegations that it had infringed a competitor's trademark and patents by producing and selling a similar looking music equipment cart with a very similar name ("Multi-Cart" vs. "Ulti-Cart"). 210 Cal. App. 4th at 923-929. The appeals court rejected the insured's argument that the allegations triggered a duty to defend under its general liability policy's "personal and advertising injury" coverage for liability arising from "disparage[ment] [of] a person's or organization's goods, products or services . . . ." Id. The court found no potential for liability based on disparagement, either express or implied, reasoning that the insured was not alleged to have identified the competitor or its product, or to have suggested that the insured's product was superior to that of the competitor. Id.

The Court of Appeal's decision in Swift was one in a series of recent decisions by California appeals courts and federal district courts reflecting a struggle to define the boundaries of "disparagement by implication." While there appear to be some common trends in the opinions, there also is tension among a few of them. Indeed, the Court of Appeal in Swift expressly repudiated the decision of another panel from the same district on the same issue. See 210 Cal. App. 4th at 925-926, discussing Travelers Property Cas. Co. of America v. Charlotte Russe Holding, Inc., 207 Cal. App. 4th 969 (2d Dist. Ct. App. 2012), [enhanced version available to lexis.com subscribers]. This likely contributed to the Supreme Court's decision to grant review in Swift.

Please click here for a detailed discussion of the legal landscape on disparagement liability, our thoughts on the Swift decision and the potential impact of the forthcoming decision from the California Supreme Court. We will be following Swift and will provide further reports on this blog about its progress through the California Supreme Court.

Read additional articles on legal developments that affect policyholders at the Policyholder Perspective blog.

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