CGS Industries, Inc. v. Charter Oak Fire Ins. Co., --- F. Supp. 2d ----, 2010 WL 4720320 (E.D.N.Y.)
CGSI sued Charter Oak for breach of contract for failure to defend CGSI in a trademark suit brought by Five Four Clothing. Charter Oak’s policy covered "'advertising injury,' caused by an offense committed in the course of advertising [CGSI's] goods, products or services." "Advertising injury" was defined as "injury, arising out of ... [i]nfringement of copyright, title or slogan...." There were exclusions for (1) advertising injury "caused by or at the direction of [CGSI] with the knowledge that the act would violate the rights of another and would inflict" such injury; and (2) advertising injury "arising out of oral, written or electronic publication of material whose first publication took place before the beginning of the policy period."
Five Four sued CGSI for trademark and trade dress related claims. It alleged that CGSI “counterfeited and/or infringed [its] trademarks by advertising, distributing, selling and/or offering for sale unauthorized goods including without limitation apparel bearing unauthorized reproductions of [its] trademarks." These trademarks allegedly "embod[y] the spirit of modern culture," and through "longstanding use, advertising and registration, ... have achieved a high degree of consumer recognition." They are purportedly "highly recognized by the public and serve to identify the source of the goods as from Five Four." The complaint alleged that CGSI possessed a culpable state of mind.
Charter Oak denied it had a duty to defend, arguing that the underlying complaint didn’t allege infringement of slogan or title, that the knowing violation exclusion applied, and that the allegedly improper conduct occurred prior to the policy period.
CGSI responded that the alleged TM infringement constituted infringement of title and slogan, and that Charter Oak had a duty to defend because of the potential for coverage, even if the facts may ultimately bar indemnity.
Under New York law, an insurer’s duty to defend is exceedingly broad, triggered whenever there is a reasonable possibility of coverage. If there is doubt, the insurer is generally required to defend. Exclusions are subject to strict construction and must be read narrowly, and the insurer must defend unless it can demonstrate that the allegations of the complaint unambiguously plead solely and entirely within the policy exclusions. If a relevant term is not defined in the policy, it is given its ordinary meaning, which may include its usage in federal law; any ambiguity must be resolved in favor of the insured.
“Title” isn’t defined in the policy or under NY precedent. Black’s Law Dictionary defines “title” as "A mark, style or designation; a distinctive appellation; the name by which anything is known." The Five Four complaint might reasonably allege infringement of title or slogan. Five Four specifically alleged that its marks served as source identifiers, and thus the alleged misuse of the marks reasonably constitutes "infringement of ... title" since it sought to exploit Five Four's "distinctive appellation." Charter Oak argued that “title” should only encompass literary or artistic works, but this was inconsistent with the case law and unduly restrictive given NY’s rules of construction. “Charter Oak could easily have drafted a policy which clarified that "title" only refers to literary or artistic works, as other insurance policies do.”
Charter Oak relied on a Second Circuit case, Hugo Boss, holding that “trademarked slogan” applied only to words or phrases used to promote particular products or product lines, not the product name itself. But the policy language here is different. “Moreover, the Five Four marks are not solely product names as was the case in Hugo Boss. CGSI's alleged misconduct ‘misrepresent[ed] the nature, characteristics, and qualities’ of the offending goods, not just their product names. The Five Four marks do more than simply display the words ‘Five Four.’ The marks include symbols and styles that, according to the Five Four Complaint, help ‘embody the spirit of modern culture.’ These symbols may therefore reasonably constitute ‘slogans.’" Anyway, even the insurer in Hugo Boss had a duty to defend, given the legal uncertainty about the meaning of “trademarked slogan.” Given legal uncertainty and New York's policy to construe ambiguous insurance provisions in favor of the insured, Charter Oak had a duty to defend.
Comment: the bigger problem here appears to be that the complaint alleged infringement of what seems to me pretty clearly a graphic design. The allegedly infringed mark/trade dress (does anyone but the lawyers really think this is inherently distinctive?):
NY also requires that the claimed injury must “arise out of an offense occurring in the course of the insured's advertising activities” in order to constitute advertising injury. The issue was not whether the ad was the cause of the creation of the infringing product, but whether the injury was caused by an offense committed in the course of advertising the insured products. The Five Four complaint sufficiently alleged that CGSI’s misconduct was “in the course of” advertising by specifically mentioned advertising as well as other means of infringement. “Individual discovery documents from the underlying litigation do not establish with sufficient certainty that advertising is not at all implicated. The alleged sale of these goods at Wal-Mart stores, including any signs, tags, or other notifications to the public may reasonably constitute point-of-sale advertising.”
The knowledge of falsity exclusion also didn’t apply. It was simply undetermined at this stage whether or not the alleged misconduct was committed "with the knowledge that the act would violate the rights of another." Five Four alleged a violation of § 43(a), which does not require intentional misconduct, so CGSI could be found liable without intentional misconduct. There is no duty to defend only where there is no possible factual or legal basis on which a duty to indemnify could apply.
The court also rejected the application of the first publication exclusion. Charter Oak argued that CGSI sold the allegedly infringing jeans to Wal-Mart before the policy coverage period. Charter Oak’s argument was based on one declaration, which did not resolve the factual dispute with certainty. Plus, CGSI held a nearly identical insurance policy from Charter Oak during that period. Thus, there was a possible factual basis for indemnity, triggering the duty to defend. Partial summary judgment on coverage for CGSI.
Trivia: the underlying complaint says that Five Four was founded in 2002, yet it sells a shirt saying “est. 1980.”
The Five Four complaint also laughably claims fame, and lists as its celebrity followers Rainn Wilson, Sean Paul, Jay Sean, Gregory Michael, Aaron Carter, Erik Estrada, Larry King, Cory Monteith, John Salley, Matt Leinart, Omar Miller, Michael Strahan, Terry Crews, Edgar Ramirez and Josh Powell. Dude, I don’t even recognize most of your celebrities, let alone your brand.