AU Electronics, Inc. v. Harleysville Group, Inc.
82 F. Supp. 3d 805
N.D. Ill.2015Background
- AU Electronics (owned by Vadria and Yasin) bought and resold unlocked cellphones; Sprint and T‑Mobile sued AU alleging trademark and related claims for reselling altered/subsidized phones. Both suits later settled.
- AU had a Harleysville business liability policy (limits $1M/$2M) covering "personal and advertising injury," which includes "use of another's advertising idea," but expressly excludes infringement of trademark, trade secret, and other intellectual property (excluding copyright, trade dress, slogan).
- AU did not notify Harleysville when the carriers filed suit (Nov–Dec 2012). After discovery disclosures in July 2013, AU tendered defense/indemnity (July 31, 2013). Harleysville indicated likely noncoverage on Aug 14, 2013; AU settled with carriers on Aug 16, 2013 and then sued Harleysville for breach of the duty to defend/indemnify.
- Key disputes: (1) whether the underlying complaints alleged trade dress or other covered advertising‑injury theories (AU) versus trademark claims excluded by the policy (Harleysville); (2) whether AU’s July 31, 2013 notice was timely.
- The court granted Harleysville summary judgment on two independent grounds: Harleysville had no duty to defend or indemnify because the carriers alleged trademark (not trade dress or misappropriation of an advertising idea), and AU’s tender was untimely as a matter of law.
Issues
| Issue | Plaintiff's Argument (AU) | Defendant's Argument (Harleysville) | Held |
|---|---|---|---|
| Whether underlying suits alleged a covered "trade dress" claim or other covered advertising injury | Sprint/T‑Mobile sued under §43(a) (which can encompass trade dress), so complaints arguably could state trade dress or covered advertising‑idea claims | Complaints allege use of Sprint/T‑Mobile Marks (logos) and repackaging/substitution conduct amounting to trademark misappropriation, not trade dress or misappropriation of an advertising idea | The complaints allege trademark claims, not trade dress or misappropriation of an advertising idea; no duty to defend/indemnify granted |
| Whether ambiguity about coverage required Harleysville to defend | If any reasonable question existed about coverage, Harleysville had to defend or could not later recoup defense costs | Harleysville denied defense from the outset (permitted); policy contains right to reimbursement if it later defends then determines no coverage | Harleysville permissibly denied a defense; Gainsco inapposite because insurer did not tender defense and policy allows reimbursement |
| Whether AU’s July 31, 2013 tender was timely under the policy’s "as soon as practicable" notice clause | Tender was timely because AU only learned of facts supporting coverage after carriers’ July 2013 disclosures | AU’s insured was represented by counsel, knew of suits in Nov–Dec 2012, and unreasonably delayed >7 months; notice was untimely as a matter of law | Tender was untimely; notice was not given within a reasonable time and untimely notice bars recovery |
| Consequence for bad‑faith/extra claims AU sought to add | AU sought to add bad‑faith/improper claims practice under Illinois statutes | Harleysville contended no statute claims if no coverage/duty breached | Because no duty was owed, amendment to add statutory bad‑faith claims denied |
Key Cases Cited
- Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992) (§43(a) covers both trademark and trade dress causes of action)
- Cincinnati Ins. Co. v. Eastern Atlantic Ins. Co., 260 F.3d 742 (7th Cir. 2001) (duty‑to‑defend inquiry focuses on whether complaint’s allegations are arguably within policy coverage)
- Greenwich Ins. Co. v. RPS Prods., Inc., 379 Ill.App.3d 78 (Ill. App. 2008) (allegations showing use of a trademark/logo support finding of trademark, not trade dress, claim)
- Country Mutual Ins. Co. v. Livorsi Marine, Inc., 222 Ill.2d 303 (Ill. 2006) (untimely notice is an absolute bar to recovery; "as soon as practicable" means reasonable time)
- Del Monte Fresh Produce N.A., Inc. v. Transportation Ins. Co., 500 F.3d 640 (7th Cir. 2007) (defines misappropriation of an advertising idea as wrongful taking of a competitor’s solicitation idea)
- General Agents Ins. Co. of America v. Midwest Sporting Goods Co., 215 Ill.2d 146 (Ill. 2005) (insurer that tenders defense cannot later recoup defense costs absent contractual allowance)