Air Engineering, Inc. v. Industrial Air Power, LLC
828 N.W.2d 565
Wis. Ct. App.2013Background
- Air Engineering sues Industrial in underlying action alleging misappropriation of its advertising systems and Website Source Code to market Industrial's products.
- Acuity, Industrial's CGL insurer, defends under reservation and seeks declaratory judgment that there is no duty to defend or indemnify.
- Circuit court grants declaratory judgment for Acuity; Industrial appeals, arguing a duty to defend exists under Advertising Injury.
- Air Engineering's key systems include the Internet Advertising System, Parts Purchasing System, Customer Database System, and Website Source Code; the Internet Advertising System targets customers via Google searches and domain links.
- Allegations claim Industrial used Air Engineering's Proprietary Systems and Website Source Code to operate and market its own business, allegedly causing loss of Air Engineering's customers and revenues.
- The court addresses whether the complaint, viewed liberally, alleges an advertising injury and whether the knowing-violation exclusion defeats coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the complaint allege an advertising injury under the policy? | Air Engineering contends allegations fall within advertising injury due to use of Air's advertising ideas. | Acuity contends no advertising injury is alleged. | Yes; the complaint alleges use of another's advertising idea. |
| Does Industrial engage in advertising activity as alleged? | Air Engineering asserts Industrial used the Proprietary Systems to market and solicit business. | Acuity argues the complaint fails to show advertising activity by Industrial. | Yes; allegations describe Industrial placing ads and marketing to attract customers. |
| Is there a causal connection between Industrial's advertising activity and Air Engineering's injury? | Air Engineering contends Industrial's advertising usurped Air's methods causing injury. | Acuity maintains no proven causal link is required at this stage. | Yes; allegations show the advertising activity causally linked to injury. |
| Does the knowing violation exclusion bar coverage? | Industrial argues exclusion defeats defense only if all claims require knowing violation. | Acuity asserts any claim with knowledge of rights violation bars defense. | No; at least one covered claim exists and the exclusion does not extinguish the duty to defend. |
| Does the insurer have a duty to defend if some claims are potentially covered? | Air Engineering argues there are covered claims within the complaint warranting defense. | Acuity contends defense obligation is limited if no covered claim exists. | Yes; there is a duty to defend the entire suit when a potentially covered claim exists. |
Key Cases Cited
- Atlantic Mut. Ins. Co. v. Badger Med. Supply Co., 191 Wis. 2d 229 (Ct. App. 1995) (advertising idea defined; customer information not advertising idea)
- Hyundai Motor Am. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 600 F.3d 1092 (9th Cir. 2010) (advertising idea; build-your-own feature as marketing method)
- Ross Glove Co. v. Acuity, 344 Wis. 2d 29 (Wis. Ct. App. 2012) (advertising injury coverage; willful conduct not required for duty to defend)
- Fireman's Fund Ins. Co. of Wis. v. Bradley Corp., 261 Wis. 2d 4 (Wis. 2003) (duty to defend analyzed; coverage broader than indemnity)
- Danbeck v. Am. Family Mut. Ins. Co., 245 Wis. 2d 186 (Wis. 2001) (policy interpretation; de novo review; contractions of duty to defend)