Friday, June 08, 2012

falsely taking credit isn't disparagement for ad injury purposes

Bullpen Distribution, Inc. v. Sentinel Ins. Co., Ltd., 2012 WL 1980910 (N.D. Cal.)

Sentinel provided business liability insurance to Bullpen and its president, John Brill.  The policy covered “personal and advertising injury” including “[o]ral, written or electronic publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services.”  Third party AYI sued Bullpen and Brill, asserting claims of misappropriation of trade secrets, false advertising, and so on, alleging that Brill and another former AYI employee disrupted AYI’s business and stole its customers.  AYI alleged that Bullpen’s website falsely took credit for AYI’s business experience with statements such as “[s]ince 1996, the Bullpen team has been helping specialty foods manufacturers and distributors move excess inventory—quickly and with integrity,” and falsely represented that Bullpen was a continuation of AYI under another name.

Sentinel refused coverage.  California law recognizes a broad duty to defend, with a burden on the insured to establish a potential for coverage, with doubts resolved in the insured’s failure.  The only issue was whether there was potential disparagement coverage.  Sentinel argued that the AYI complaint didn’t allege any derogatory statements about AYI; it didn’t even suggest that Bullpen mentioned AYI by name.  Bullpen argued that the complaint alleged disparagement by implication.

California courts have held that “disparagement” in an insurance policy is supposed to cover trade libel, the intentional disparagement of the quality of property.  Cases finding that the underlying plaintiff had been mentioned/disparaged by implication involved claims that the underlying defendant was the “only” producer of a product, made more effective/superior products than others, or had superior rights to other claimants; one case involved the sale of allegedly inferior imitation goods that might harm the true producer’s reputation.  Here, the allegations were different: they touted Bullpen, but didn’t claim superiority to others like AYI.  Thus, there was no potential for coverage and no duty to defend.

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