777 F. Supp. 2d 454
E.D.N.Y2011Background
- CGS sued Charter Oak for breach of contract and indemnification related to Five Four litigation.
- Charter Oak denied defense duties and relied on a contractual liability exclusion in the Web Xtend insurance endorsement.
- Five Four sued CGS and Wal-Mart in California federal court for trademark and trade dress infringement; CGS and Wal-Mart were jointly sued.
- Settlement in Five Four totaled $250,000, paid by CGS on behalf of CGS and Wal-Mart.
- CGS sought to recover Wal-Mart's defense costs ($57,379.44) and the $250,000 settlement amount from Charter Oak.
- The court had previously held Charter Oak had a duty to defend CGS in the Five Four litigation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defense costs paid by CGS for Wal-Mart are covered | CGS argues exception to exclusion applies to defense costs | Charter Oak contends exclusion applies and no independent duty exists | Defense costs are not covered under the exception |
| Whether Wal-Mart's imputed damages are covered under the exception | Independent duty to indemnify under law exists aside from the supplier agreement | Exclusion should apply; no independent indemnity duty | Yes, Wal-Mart's imputed damages are covered by the exception |
| Whether the settlement amount allocated to Wal-Mart is indemnifiable without improper allocation | Allocation not required; independent liability exists | Allocation needed to determine coverage | Settlement amount attributable to advertising injury is potentially indemnifiable; allocation to be resolved at trial |
Key Cases Cited
- CBS Inc. v. Ziff-Davis Publishing Co., 75 N.Y.2d 496 (N.Y. 1990) (breach of warranty and indemnification principles relevant to insurance coverage)
- Lamborn v. Czarnikow-Rionda Co., 221 A.D. 737 (1st Dep't 1927) (defense costs as damages must be contemplated by contract or statute)
- Mount Vernon Fire Ins. Co. v. Belize NY, Inc., 277 F.3d 232 (2d Cir. 2002) (interpretation of insurance contracts; American rule considerations)
- Hecht v. Components International, Inc., 22 Misc. 3d 360 (Sup. Ct. N.Y. 2009) (statutory warranties and related coverage issues in insurance)