Insurance Law

Georgia Court Holds Coverage Triggered for Product Disparagement Claim

In its recent decision in Foliar Nutrients v. Nationwide Agribusiness Ins. Co., 2015 U.S. Dist. LEXIS 125528, [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], (M.D. Ga. Sept. 21, 2015), the United States District Court for the Middle District of Georgia had occasion to consider the personal and advertising offense of business-related defamation under a commercial general liability policy.

Nationwide’s insured, Foliar, was engaged in a protracted dispute with a business competitor, PFS, concerning their competing products. Foliar sued PFS for alleged patent infringement. In return, PFS counterclaimed, alleging that Foliar had engaged in a campaign of contacting PFS’ customers, telling them not to purchase PFS’ products, and threatening expensive litigation if they did. The counterclaim specifically alleged that Foliar’s communications “constitute false and misleading descriptions of fact and representations of fact about its own and PFS’ product.” The counterclaim alleged causes of action for interference with business relationships and unfair competition, and also for making false and misleading representations concerning PFS’ products.

Foliar sought coverage for the counterclaim under the policy issued by Nationwide. In particular, Foliar claimed that it was alleged to have committed the personal and advertising injury offense of “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services,” thus entitling it to a defense and indemnification under the policy. Nationwide, however, denied any coverage obligation with respect to the counterclaim, taking the position that the counterclaim did not fall within any of the enumerated personal and advertising injury offenses.

In court disagreed with Nationwide’s reasoning, concluding that the allegations in the counterclaim plainly alleged disparagement of PFS’ products, thus at least triggering a duty to defend:

When Foliar reached out to PFS’ customers to both undermine PFS’ product and discourage PFS’ customers, under threats of expensive and time-consuming litigation, from engaging in future business with PFS, this arguably amounted to oral disparagement of PFS’ goods, products, or services. This is even more apparent because PFS alleged that Foliar’s false and misleading statements caused harm to their sales and goodwill. Because the PFS’ counterclaim raised sufficient allegations of a “personal and advertising injury” that potentially or arguably fell within Nationwide’s policy coverage, Nationwide had a duty to defend Big Bend in the lawsuit.

In reaching its conclusion, the court also considered and rejected the application of various exclusions. Most pertinently, the court held that the policy’s “Knowing Violation” exclusion did not negate a duty to defend, since even though the counterclaim alleged that Foliar’s conduct was intention, the counterclaim did not contain sufficient facts to “demonstrate whether or not Foliar … had actual knowledge that their conduct would both violate the rights of PFS and would inflict personal and advertising injury.”

    Brian Margolies, Partner, Traub Lieberman Straus & Shrewsberry LLP

Read more at the Traub Lieberman Insurance Law Blog, Edited by Brian Margolies.

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