Even specific allegations of bad intent don't defeat insurer's duty to defend

AMCO Ins. Co. v. Inspired Technologies, Inc., --- F.3d ----, 2011 WL 3477188 (8th Cir.)

3M sued Inspired for false advertising of Inspired’s Frog Tape/claims about 3M tape under the Lanham Act and Minnesota state law. (Seems likely related to this suit.) Inspired tendered defense to AMCO, and the lawsuit settled. AMCO sought a declaration that it owed no duty to defend or indemnify because of its policy’s knowledge of falsity exclusion from the advertising injury coverage. The district court agreed, and the court of appeals reversed.

3M alleged that Inspired’s ads depicted 3M’s tape in false and deceptive ways, including a doctored “Actual Photo,” videos purportedly demonstrating poor performance by 3M that actually didn’t represent equal stresses applied to the parties’ products, and tests that weren’t reliable or typical. 3M included a claim for enhanced damages under the Lanham Act due to Inspired’s willfulness, and in response to interrogatories it said, for example, “It is apparent that, rather than use an ‘actual photo’ of 3M tape, ITI manipulated a tape image by, among other things, replicating a photo to create a repeating pattern. Such replication could only occur through intent to deceive.”

The court of appeals rather easily concluded that the district court erred by failing to recognize that, under Minnesota law, a duty to defend all claims exists when any one claim arguably is covered by the policy's language. It was not error to look at the interrogatory answers, even though duty to defend is generally determined by the allegations of the complaint. The complaint isn’t controlling when actual facts within the insurer’s knowledge clearly establish the existence or nonexistence of a duty to defend. Interrogatory answers are sworn and admissible to the extent allowed by the FRE, so it was okay to look at them. However, it was error to conclude that the answers triggered the knowledge of falsity exclusion. The answers on which the court relied didn’t reflect alleged knowledge of falsity as to all the purportedly unfair ads. 3M discussed the purported “actual photos,” but there were other claims in the case, including unreliable testing, which could have been intentional or merely negligent. (Or, I should add, merely wrong.)

To prevail, a Lanham Act plaintiff need not prove knowledge of falsity. “The district court thus focused on some of the conduct alleged to prove the claim rather than the global claim itself.”