In High Point Design, LLC v. LM Ins. Corp., No. 16-1446-CV, 2018 WL 6625763 (2d Cir. Dec. 19, 2018) (New York law), the Second Circuit held that an advertising injury was alleged even if the underlying complaint, standing alone, did not trigger the duty to defend where the underlying discovery demands sought information related to paid advertisements placed High Point’s advertising directly at issue. The case is significant as it reaffirms New York law, in the context of claim for insurance coverage for advertising injuries, that an insurer’s duty to defend does not turn solely on the language of the complaint but instead on all facts made known to the insurer regarding the claim for which its insured has sought coverage.

As background, High Point Design, LLC (“High Point”) received a cease and desist alleging that it infringed on the underlying defendant’s design patent in connection with fuzzy slippers sold by High Point. After receiving the cease and desist letter, High Point filed for a declaratory judgment, and the underlying defendant, in turn, filed a counterclaim for patent and trade dress infringement. At the time, High Point was covered by a commercial general liability policy, which defined “personal and advertising injury” to include an “injury … arising out of … [i]nfringing upon another’s copyright, trade dress or slogan in [High Point’s] ‘advertisement.’” The policy defined “Advertisement” as “a paid announcement that is broadcast or published in the print, broadcast or electronic media to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” The policy excluded claims for “Personal and advertising injury” arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights or out of securities fraud. However, this exclusion included a carve-out making the exclusion inapplicable to infringement, in the insured’s “advertisement”, of copyright, trade dress or slogan.

The Court rejected the insurer’s argument that there was no duty to defend, holding the “offer for sale” alleged in the counterclaim, coupled with the discovery demands to High Point seeking advertising materials, triggered the duty to defend. The Court reasoned, in part, that the underlying defendant alleged that High Point offered the allegedly infringing products for sale, and  the “slippers were not sold encased in packaging of any kind—they were simply displayed as slippers.” Pursuant to New York law, and “offer for sale” extends to advertising. Additionally, the Court reasoned that “the fact that the counterclaim d[id] not set forth a claim labeled ‘advertising injury’ [wa]s not a barrier to an insured seeking coverage for a defense for advertising injury under New York law.” Specifically, here, the underlying defendant’s discovery demands sought information related to advertisements and were extrinsic evidence that supported interpreting the counterclaim’s allegation of “offering for sale” to include a claim for damages due to advertising. Thus, the Second Circuit did not confine its duty to defend analysis to the language of the underlying pleadings, but rather, was willing to look to extrinsic evidence in order to find a duty to defend.

 

By Anthony Tessitore and Zachary Auslander