In Hartford Cas. Ins. Co. v. Swift Distribution, Inc., et al., --- Cal.Rptr.3d ----, 2012 WL 5306248 (filed October 29, 2012), the Court of Appeal ruled there was no duty to defend under the “advertising injury” liability coverage, where an insured’s allegedly offending advertisement did not identify and disparage the claimant’s business or product. In so holding, the Court expressly rejected the conflicting holding in Travelers Property Cas. Co. of America v. Charlotte Russe Holding, Inc. (2012) 207 Cal.App.4th 969, in which the Court found “advertising injury” even though the insured did not publish any disparaging comments about the claimant or its product.
In Swift Distribution, Dahl manufactured and sold the “Multi-Cart,” a collapsible cart used for moving movie and sound equipment. Dahl sued Swift Distribution dba Ultimate Support Systems, Inc. (“Ultimate”) for patent and trademark infringement and misleading advertising arising from Ultimate’s sale of the “Ulti-Cart.” Dahl alleged that Ultimate improperly advertised the Ulti-Cart, which resembled the Multi-Cart and had a similar name. However, Ultimate’s advertisement for the Ulti-Cart did not identify the Multi-Cart and contained no derogatory content about the Multi-Cart.
The Court in Swift Distribution determined there was no potential for coverage. Ultimate’s liability policy defined “personal and advertising injury” to include “injury. . . arising out of . . . [o]ral, written or electronic publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services.” The Court found that Dahl’s claim did not meet this definition because there was no alleged falsehood directed at Dahl or the Multi-Cart. The Court reasoned that an injurious falsehood must specifically refer to the injured person or product, either by express mention or by reasonable implication. Even if the advertisement’s use of “Ulti-Cart” referred to the similar-sounding “Multi-Cart” by implication, the advertisement contained no disparagement of “Multi-Cart.” Therefore, the Court concluded, there was no potential for coverage, and thus, no duty to defend.
In reaching its ruling, the Court expressly rejected the prior appellate court decision in Charlotte Russe. In that case, a clothing manufacturer allegedly breached its distribution contract with an apparel manufacturer by deeply discounting prices on the manufacturer’s products. The manufacturer alleged that the discount suggested to consumers that the products were of inferior quality. The Court in Charlotte Russe determined that the allegations could reasonably be interpreted to allege that the insured retailer disparaged the manufacturer’s products and that the retailer’s liability insurer had a duty to defend this “disparagement” claim. The Court in Swift Distribution rejected Charlotte Russe, reasoning that a reduction in price does not constitute disparagement, and that further, there was no publication alleged in Charlotte Russe or a specific reference to the manufacturer’s products.
Thus, until the Supreme Court resolves this issue, there is a conflict in California case law regarding whether coverage for “advertising injury” requires the publication of disparaging content against another party or its product.