Insurance Policyholder Advocate & Attorney David Gauntlett : Gauntlett Law Firm : Insurance Recovery, Policy Interpretation : Irvine, Orange County, California

Two distinct decisions, one applying North Carolina the other Illinois law, both found false advertising claims fell within standard advertising injury coverage where initiated by competitors.

Granutec, Inc. v. St. Paul Fire & Marine Ins. Co., No. 5:96-CV-489-BO(2), 2008 WL 312146 (E.D.N.C. Jan. 16, 2008)

Granutec, Inc. (“Granutec”) is a North Carolina corporation that manufactures and sells generic, over-the-counter (“OTC”), pharmaceutical products. Following an initial agreement with Johnson & Johnson in 1989 to employ a color scheme for generic caplets different from that of the Tylenol Gelcaps, in February 1994 Granutec changed the color scheme to mimic the Tylenol Gelcaps. This conduct precipitated a suit against it for Lanham Act claims under 15 U.S.C. § 1125(a) and 43(a)(2) for false and deceptive advertising, as well as trademark trade/trade dress infringement.

Following issuance of a preliminary injunction against Granutec on December 21, 1995, Granutec agreed to market its OTC product in a color scheme that was conspicuously different from that used by McNeil, a Johnson & Johnson subsidiary, after incurring $500,000.00 in defense fees. Two policy forms were in effect from June 30, 1994 to July 31, 1994, a 1986 ISO form covering as “advertising injury” “misappropriation of advertising ideas or style of doing business”, and from August 1, 1994 to August 1, 1995, a St. Paul variant of an ISO 2001 policy form covering as “advertising injury” “unauthorized taking or use of any advertising material, slogan or title of others” the later policy included intellectual property exclusion.

Focusing on the express unfair competition claim pursuant to NCGS § 75-1.1 et seq., which prohibits “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce,” the court found a defense owed. It noted under the earlier 1986 ISO policy issued by Aetna:

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Although the general rule is that facts, not labels of causes of action, trigger a defense under offense-based policies, as well as those looking to wrongful acts such as Directors & Officers policies, mere reference to terms that might otherwise trigger a defense, such as disparagement or misrepresentation, were deemed insufficient in and of themselves to show that the conduct fell within potential coverage.

Greektown Casino, LLC v. Zurich Am. Ins. Co., No. 07-CV-13583, 2008 WL 597814 (E.D. Mich. Feb. 29, 2008)

At issue were claims for tortious interference with contract and business relations causing Greektown to breach its agreement with plaintiffs. The court observed:

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Two cases looked at the 1986 ISO policy provision offering “advertising injury” coverage for misappropriation of “advertising ideas or style of doing business”, the later, the 1998 ISO CGL “advertising injury” provision for “use of another’s advertising idea in your advertisement.” Each found a defense in a series of distinct scenarios.

General Cas Co. of Wisconsin v. Wozniak Travel, Inc. No. 07-3515 RHK/AJB, 2008 WL 440747 (D. Minn. Feb. 14, 2008)

The court determined there was a split of authority between an unpublished court of appeal decision – Williamson v. N. Star Cos., No. C3-96-1139, 1997 WL 53029 (Minn. Ct. App. Feb. 11, 1997), review denied (Apr. 15, 1997), and the Eighth Circuit Court of Appeal applying Minnesota law in Callas Enters., Inc. v. Travelers Indem. Co. of Am., 193 F.3d 952 (8th Cir. (Minn.) 1999). The court certified to the Minnesota Supreme Court the issues of:

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HP’s counsel, Gauntlett & Associates, now seeks bad faith damages from ACE

San Jose, CA – (Business Wire)—Federal District Court Judge James Ware found ACE Insurance Company owed Hewlett-Packard more than fifty-one million dollars in defense expenses, prejudgment interest and costs for defending an antitrust counterclaim under “advertisers’ injury” coverage. The judge then credited ACE with a partial payment during the suit of $11.7 million. Gauntlett & Associates’ David Gauntlett and James Lowe represented HP in the federal suit in San Jose.

David Gauntlett noted that HP was not only awarded 100% of its requested litigation expenses paid to outside counsel including the expenses of prosecuting HP’s affirmative claims because they were shown to be necessary for the defense of the antitrust claims, but HP also recovered the expense of its in-house counsel time based on reasonable market rates.

HP had initiated suit against Nu-kote for patent infringement, trademark infringement, and false advertising claims arising from Nu-kote’s infringement of cartridge and ink technology and use of deceptive packaging mimicking HP’s trade dress for inkjet printer cartridges. Gauntlett successfully argued that the costs incurred in prosecuting the patent and trademark infringement claims were “reasonable and necessary” as defense costs to respond to Nu-kote’s antitrust counterclaims related to advertising.

HP plans to appeal a court ruling that it could not recover defense expenses of the counterclaim that occurred before the defense was tendered to the insurer. Gauntlett & Associates partner James Lowe stated, “Because ACE refused to decide in the succeeding years whether to defend and never did defend HP, any delay by HP in giving notice should be irrelevant to the recovery of defense expenses. Additionally ACE sold an insurance policy with a provision expressly waiving any insurer defenses based on failure to comply with technical policy terms such as giving early notice of a suit.”

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BASF AG v. Great Am. Assur. Co., ___ F.3d___, 2008 WL 1701864 (7th Cir. (Ill.) 2008)

This case might better be described as a tale of two courts. Since the inconsistency between the analytic approach of the Seventh Circuit applying Illinois law to that of the Supreme Court of Illinois has been deepened by this new decision.

The court reversed the district court and questioned the Illinois District Court decision on which the district court had relied, Knoll Pharm. Co. v. Automobile Ins. Co., 210 F. Supp. 2d 1017, 1025-28 (N.D. Ill. 2002). That earlier case had resolved following appellate argument on appeal. The judge who was to have authored the opinion for that panel, Judge Kanne, authored the opinion on the BASF Seventh Circuit decision.

Applying Illinois law, the court found that the phrase “arising out of” did not expand the potential plaintiff to a class who could raise potential coverage claims under otherwise uncovered antitrust allegations so long as disparagement formed a basis for the potential coverage. The court rejected the argument that the consumer plaintiff class implicitly advanced a disparagement claim by pleading that Boots violated the Illinois Consumer Fraud and Deceptive Business Practices Act (CFA), 815 ILCS 505/1 et seq.

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Insurers achieved three favorable rulings in cases which to date remain unpublished.

Chimera Investment Co. v. State Farm Fire & Cas. Co., No. 06-4268, 2008 WL 681701 (10th Cir. (Utah) March 11, 2008)

The first addresses coverage for disparagement. It found that an insured could not obtain coverage under the “personal injury” offense of “oral or written publication of material that disparages a goods products or services of another for slandering it own services”. The insured, a real estate management company which allegedly slandered a home owners association services in speaking to a condominium unit owner. The court found that the injuries for which the claimant sought to recover in a state court lawsuit where no reported injuries to the homeowners association arose did not trigger a defense. The connection between the “offense” of slander of the association’s services to the injuries sustained by the claimant did not come within “advertising injury” coverage in the courts view where the suit was for unlawful entry, trespassing and wrongful eviction from a condominium unit. It found that the policy’s “arising out of” language did not make a difference.

The two remaining cases addressing “invasion of privacy” as forms of “personal injury” coverage

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