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Musick Peeler PUBLICATIONS INNOVATIVE EXPERIENCED ACCESSIBLE
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INSURANCE NOTES

First Publication Exclusion Bars Trade Dress Claim; Judicial Estoppel Bars Insured's Argument

03.16.2009
In United National Ins. Co. v. Spectrum Worldwide, Inc., __ F.3d ___, 2009 WL 224520 (9th Cir. 2009), the Ninth Circuit Court of Appeal held that under California law, a general liability policy’s “first publication” exclusion from advertising injury coverage is not ambiguous and applies to trade dress infringement actions. This decision abrogates Arnette Optic Illusions, Inc. v. ITT Hartford Group, Inc., 43 F.Supp.2d 1088 (C.D.Cal. 1998), which had held that the exclusion was ambiguous.
In December 1997, Sunset Health hired the insured, Spectrum, to advertise and distribute Sunset’s diet drink called “Hollywood 48-Hour Miracle Diet.” Shortly thereafter, Spectrum terminated its contract with Sunset and began marketing a competing diet drink sold by Celebrity Products called “The Original Hollywood Celebrity Diet.” In 1999 and May 2001, Spectrum made a series of changes to the Celebrity drink’s label to resemble the Sunset drink. In 2001, Sunset filed a trade dress infringement suit against Spectrum.
In the infringement suit, Spectrum argued that its 1999 label was so similar to its 2001 label that Sunset was not in danger of immediate harm. Based on that argument, the district court denied Sunset’s request for a preliminary injunction.
United National issued to Spectrum an excess policy effective April 26, 2001. The United National policy provided coverage from “advertising injury” liability, which was defined as including:

a.  Oral or written publication of [slanderous or libelous] material. . . ;

b.  Oral or written publication of material that violates a person’s right of privacy;

c.  Misappropriation of advertising ideas or style of doing business;

d.   Infringement of copyright, title or slogan.

Spectrum settled the infringement suit with funds from Spectrum’s insurers, including United National. United National then sued for reimbursement based on its policy’s “first publication” exclusion and Spectrum’s argument of infringement in 1999. The exclusion applies to “’advertising injury’ . . . arising out of oral or written publication of material whose first publication took place before the beginning of the policy period,” on April 26, 2001.

First, Spectrum asserted the exclusion was ambiguous because the definition of “advertising injury” uses the word “publication” in reference to slander or libel and invasion of privacy but not infringement. The Ninth Circuit disagreed because the exclusion expressly applies to “advertising injury,” which includes misappropriation and infringement. 

Second, Spectrum contended that it was the 2001 label, not the 1999 label, that infringed on Sunset’s trade dress. Noting that this contention contradicted the very argument it successfully made in the infringement suit, the Ninth Circuit rejected Spectrum’s attempted “gaming” of the courts and applied judicial estoppel to prevent the impression that either the court in the infringement suit or the court in the coverage suit was misled. 

The Ninth Circuit held that Spectrum and its principals (who benefited from United National’s contribution) were jointly and severally liable for repayment of United National’s contribution.
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