Insurance policy coverage examined by district court

The obligation of insurance carriers to defend against allegations of trademark infringement and unfair competition has been a fertile source of litigation in recent years. Although many general liability policies contain so-called 'advertising injury' clauses that trigger coverage under these circumstances, carriers have become increasingly aggressive in their attempts to limit the scope of these provisions.

In Allied Insurance Co v Bach (05 C 5945, 2007 WL 627635, February 27 2007), one such effort fell short as a matter of law. The defendants, which include a company called Cam Golf and an individual named Brian Bach, had been served with a complaint by a third party that charged them with, among other things, wilful and intentional infringement and counterfeiting. Because the insurance policy the defendants had purchased from the plaintiff insurer, Allied Insurance Co, covered the defence of allegations of "infringement upon another's copyright, trade dress or slogan", the defendants filed a claim with the plaintiff seeking coverage under the policy. In response, the plaintiff filed a declaratory judgment action seeking a ruling that the underlying infringement and counterfeiting action was not covered by the policy.

The gravamen of the plaintiff's complaint was that the policy in question expressly excluded advertising injuries "caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict personal and advertising injury". Because the underlying action accused the defendants of intentional infringement and counterfeiting, the plaintiff argued that this exclusion placed the alleged conduct outside the policy's scope. When the defendants admitted in their answer that they had indeed been accused of intentional misconduct, the plaintiff moved the court for judgment on the pleadings; for their part, the defendants moved the court for summary judgment that coverage was appropriate.

The court began its analysis by holding that:

"[i]f the allegations are potentially within the policy coverage the insure[r] is obligated to defend even if the complaint alleges several theories, only one of which would be within the policy coverage."

It acknowledged that if the underlying action produced a finding that the defendants had acted in bad faith, the policy exclusion would apply. Nevertheless, it also noted that "the Lanham Act provides a cause of action for any violation of a [trademark] by marketing counterfeit goods regardless of intent or knowledge". Because a finding of liability in the underlying action therefore could result even in the absence of wilful misconduct, allegations that wilful misconduct had occurred were not dispositive of the plaintiff's duty to defend the defendants. Accordingly, the court entered summary judgment in the defendants' favour and ordered coverage.

Theodore H Davis Jr, Kilpatrick Stockton LLP, Atlanta

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