advertising injury insurance covers false advertising/patent case despite exclusions

In re Indian Harbor Ins. Co. v. SharkNinja Operating LLC, No. N20C-02-014 PRW CCLD (Del. Super. Ct. Nov. 19, 2020)

Indian Harbor provided SharkNinja with personal and advertising injury insurance; it was sued for false advertising and patent infringement by a competing vacuum manufacturer. Under Massachusetts law, Indian Harbor had a duty to defend. The relevant covered offenses:

(d) Oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services; ...

(f) The use of another’s advertising idea in your “advertisement”; or

(g) Infringing upon another’s copyright, trade dress or slogan in your “advertisement”[.]

There were also exclusions for failure to conform “with any statement of quality or performance made in your ‘advertisement’ ” and “infringement of copyright, patent, trademark or other intellectual property rights.”

 iRobot then sued, alleging that “SharkNinja deployed a smear campaign calculated to target, and to assert false advantages over, iRobot’s vacuum cleaners, and to mislead consumers about the legitimacy and fairness of iRobot’s pricing in comparison to its own pricing.”In Massachusetts, “[a]n insurer’s duty to defend is triggered where the allegations in the complaint ‘are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms,’” even if “the merits of the claim are weak or frivolous” or “the insurer could eventually be determined to have no duty to indemnify the insured.” A possibility of coverage is enough; the allegations of the underlying complaint need not “specifically and unequivocally” make out a covered claim. The manner in which the plaintiff presents her accusations need not “mirror the policy’s coverage language.”

The underlying claim “roughly sketche[d]” personal and advertising injury. For example, iRobot alleged that SharkNinja “directly targets iRobot’s Roomba vacuums ... [by] expressly and falsely claim[ing] that the Shark IQ offers the same technological advancements as iRobot, but at less than half the price;” makes “false comparisons to iRobot’s vacuums [that] threaten iRobot with ... reputational harm;” etc. This singling out of iRobot for negative advertising potentially “disparaged” iRobot for purposes of coverage.

So too with “use of another’s advertising idea” injury. This concept encompasses myriad meanings, including: “an idea about the solicitation of business and customers;” “ideas in connection with marketing and sales and for the purpose of gaining customers;” and “an idea for calling public attention to a product or business, especially by proclaiming desirable qualities so as to increase sales. ...” In the underlying complaint, iRobot provided a line-item chart detailing the ways in which SharkNinja “mimic[ked]” iRobot’s marketing claims about the Roomba’s “selected cleaning” and “recharge/resume” features to influence purchasing decisions.

Indian Harbor’s arguments failed because “Massachusetts courts routinely reject narrow, insurer-preferred interpretations of undefined policy terms that would winnow broad defense coverage.”

What about the failure to conform exclusion? Indian Harbor failed to meet its burden to show that the underlying complaint was really about SharkNinja’s own products, not iRobot’s products. At the very least, some of iRobot’s complaint was about negative things said about iRobot. Anyway, the failure to conform exclusion “cannot be fairly read also to bar coverage whenever SharkNinja couples those with misleading or disparaging statements about a competitor’s products. Otherwise, much of the personal and advertising injury coverage would be nullified—a result clearly contrary to SharkNinja’s reasonable expectations.”

And the IP exclusion may well plainly exclude any defense against the patent claims, but: “[T]he general rule in Massachusetts in the general liability insurance context is that the insurer must defend the entire lawsuit if it has a duty to defend any of the underlying counts in the complaint.”