Insurer Had No Duty to Defend or Indemnify Trademark Infringement Claim Because It Fell Within the Scope of an Intellectual Property Exclusion

Insurer Had No Duty to Defend or Indemnify Trademark Infringement Claim Because It Fell Within the Scope of an Intellectual Property Exclusion

North Coast Med., Inc. v. Hartford Fire Ins. Co., 2014 U.S. Dist. LEXIS 20701 (N.D. Cal. Feb. 17, 2014), [enhanced version available to lexis.com subscribers].

In North Coast Medical, the district court held that the insurer had no duty to defend or indemnify its insured in connection with an underlying trademark infringement action because the Intellectual Property Exclusion in its policy barred coverage as a matter of law.

This insurance coverage dispute arose out of an underlying action brought by a competitor against the insured alleging that the insured’s use of the name “THERA-PUTTY” in advertising and selling its product infringed the competitor’s registered trademark. The insured tendered the underlying action to its general liability insurer and claimed that coverage was triggered under the policy’s insuring agreement for “Personal and Advertising Injury.” The insurer denied coverage on several grounds, including on the basis of the policy’s Intellectual Property Exclusion, which precluded coverage for damage arising out of infringement of certain intellectual property rights, but carved out an exception where the alleged infringement in the underlying suit related to a “[s]logan, unless the slogan is also a trademark, trade name, service mark or other designation of origin or authenticity.” The insurer claimed the “slogan” exception to the Intellectual Property Exclusion did not apply because “THERA-PUTTY” was not a slogan, but instead was a product name.

The insured subsequently brought a coverage action against the insurer for declaratory relief and breach of contract. The insurer asserted several affirmative defenses, including that the Intellectual Property Exclusion precluded coverage for the underlying action. Before the court’s initial case management conference and before any discovery, the insured filed a motion for partial summary judgment seeking a declaration that the Intellectual Property Exclusion did not apply. While the insurer filed an opposition to the insured’s motion for partial summary judgment, it did not cross-move for summary judgment.

The district court agreed with the insurer and denied the insured’s motion for partial summary judgment, finding that coverage for the underlying action was clearly barred by the Intellectual Property Exclusion. In so holding, the district court rejected the argument that the “slogan” exception to the Intellectual Property Exclusion was applicable. The district court noted that the California Supreme Court held in Palmer v. Truck Ins. Co., 21 Cal. 4th 1109 (1999), [enhanced version available to lexis.com subscribers], that “[a] slogan is a brief attention-getting phrase used in advertising or promotion or a phrase used repeatedly, as in promotion” and that “the infringing use of a trademark that is merely a word in a phrase used as a slogan is not the same as the infringing use of a slogan.” Applying this definition of “slogan” in the instant case, the district court found that “THERA-PUTTY” was a single word—not a brief attention-getting phrase or a phrase utilized repeatedly. The district court also noted that although there may be instances in which the name of a product is also used as a slogan, there was no indication from the complaint in the underlying litigation or the record in the instant case that “THERA-PUTTY” was used as a slogan.

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