On previous motions for summary judgment filed by the insured, the Federal District Court for the Southern District of Texas, Houston Division, found that Scottsdale Insurance Company (Scottsdale) had no duty to defend the underlying complaint filed against its insured, Awards Depot, LLC, and denied Awards Depot’s motion for partial summary judgment and motion for reconsideration. Thereafter, Scottsdale filed its own motion for summary judgment on all of the claims asserted by the insured in its lawsuit.
In Awards Depot, LLC v. Scottsdale Ins. Co., No. CV H-15-3201, 2016 WL 1162187, * 2 (S.D. Tex. Mar. 23, 2016), the court reiterated that it had found the claims in the underlying lawsuit based on infringement of Trophy Depot’s trade dress all involve allegations that Awards Depot acted with knowledge that it was violating Trophy Depot’s trade dress rights and that it would inflict personal and advertising injury on Trophy Depot.
As a result, coverage under the policy is excluded by the “Knowing Violation of Rights of Another” exclusion, and Scottsdale does not owe Awards Depot a duty to defend in the underlying lawsuit. The court found that the duty to defend is an essential element of each of the insured’s three claims in its lawsuit, and absent the duty to defend, Scottsdale is entitled to summary judgment.
However, the court agreed that if the underlying complaint, which was still pending, were to be amended, the duty to defend would be determined based on the new pleading and could potentially arise at the time the amended pleading is tendered to Scottsdale for a defense under the policy. The court clarified that its summary judgment ruling in favor of Scottsdale on the duty to defend issue is based only on the “live complaint” at the time of the judgment in this case.
Tressler Comments
When insurance coverage litigation involves an underlying complaint that is subject to amendment, the duty to defend issue presented to the court must be based on the current complaint. A present duty to defend cannot be considered based on any potential amendment to a complaint, only on the pleadings before it. However, should an underlying complaint be amended, it may be resubmitted for a renewed consideration of coverage based on the amended pleadings. Whether or not the amended pleadings trigger a defense obligation will be based on an independent evaluation of the new allegations and the policy at issue. As the District Court correctly noted in Awards Depot, any duty to defend triggered by the amended pleadings will commence with the tender of the amended pleadings, and will not date back to the original underlying complaint.