Intellectual Property Exclusion In CGL Policy Precludes Coverage For “Implied Disparagement” Claim

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The United States Court of Appeals for the Ninth Circuit upheld a District Court’s entry of summary judgment in an advertising injury case based on an intellectual property exclusion.  The Ninth Circuit affirmed the ruling that an intellectual property exclusion precluded a defense obligation in a trademark infringement action even where the factual allegations were sufficient to support a potentially covered claim for implied disparagement.  Keating Dental Arts Inc. v. Hartford Cas. Ins. Co. (9th Cir., Dec. 24, 2015) 2015 WL 9460142.

The Hartford insured Keating under a business liability policy, which provided coverage for “personal and advertising injury” arising out of “publication of material that … disparages a person’s or organization’s goods, products or services.”  However, the policy precluded coverage for “personal and advertising injury” “arising out of any violation of any intellectual property rights such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity.”

Keating sought coverage from The Hartford for an underlying action instituted by James R. Glidewell Dental Ceramics, Inc. for trademark infringement of its trademark BRUXZIR for dental restorative products.  The alleged infringement was based upon Keating’s offer for sale of competing dental restorative products under the trademark KDZ BRUXER.

The Hartford denied coverage on the grounds that the allegations were precluded from coverage based on the intellectual property exclusion.  Keating asserted that the factual allegations of the complaint in the underlying action supported a potential covered claim for implied disparagement.

On appeal, the Ninth Circuit noted that all of the stated causes of action against Keating were based on trademark infringement, and all of the factual allegations tracked the elements of a trademark claim.  The Court of Appeals presumed, without making the determination, that the facts of the underlying complaint supported a claim for implied disparagement.  While the Court purported to construe the intellectual property exclusion narrowly, the Court of Appeals held that The Hartford did not owe a defense obligation because any claim of implied disparagement arose out of potential consumer confusion caused by the alleged trademark violation.  The Court relied on the decision in Indust. Indem. Co. v. Apple Computer, Inc. (1999) 79 Cal.App.4th 817, 833, holding that a general liability carrier was justified in denying a defense obligation based on the trademark infringement exclusion, because the alleged facts indicated that any tort claims arose solely from conduct relating to trademark infringement.

Interestingly, without any discussion of the issue, the Keating decision appears to reflect a departure from earlier court decisions, such as Burgett, Inc. v. American Zurich Ins. Co. (E.D. Cal. 2011) and Western Intern. Syndication Corp. v. Gulf Ins. Co. (9th Cir. 2007), that rejected insurers’ similar arguments that an implied disparagement claim dependent exclusively on acts of trademark infringement is excluded by the trademark exclusion in a CGL policy.

Though it did not mention the case, the Ninth Circuit in Keating may have considered the California Supreme Court’s decision in Hartford Cas. Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277, in which the Supreme Court refused to find a duty to defend an underlying action for patent and trademark infringement where there was no statement that derogated the competitor’s business or product on which an implied disparagement claim would lie.  In the Swift case, the Supreme Court distinguished the Burgett case as one involving an implied disparagement claim because the defendant allegedly claimed it was the sole or “only owner” of a particular trademark, but the Supreme Court otherwise appeared to reject the contention that disparagement coverage could be invoked in a straightforward patent or trademark infringement action.

Joelle Berle is an associate with Musick, Peeler & Garrett in its Los Angeles office.  Her full bio and contact information can be found at: