386 F. Supp. 3d 447
M.D. Penn.2019Background
- Hershey Creamery was sued in the District of Delaware by f'real Foods for patent, trademark, trade dress, and unfair competition claims arising from allegedly copying f'real’s self‑serve milkshake machine, packaging, kiosks, and advertising slogans (e.g., repeated use of the word "REAL").
- Liberty Mutual initially defended Hershey under a reservation of rights, then withdrew defense after certain claims were dismissed; Liberty Mutual and Liberty Insurance contend remaining claims are excluded by the policies' intellectual‑property exclusion.
- Relevant policies: three nearly identical commercial general liability (CGL) policies (Sept. 2012–Sept. 2015) issued by Liberty Mutual and a Sept. 2014–Sept. 2015 umbrella policy issued by Liberty Insurance; both define "personal and advertising injury" and exclude most IP infringement except certain uses in an "advertisement."
- The central dispute is whether f'real's Delaware Complaint alleges infringement "in [Hershey's] 'advertisement'" (thus possibly covered) or only in non‑covered channels (e.g., in‑store signage, packaging, displays).
- The district court reviews only the allegations of the underlying complaint, construes them liberally for the insured, and places the burden on the insurer to prove any applicable exclusion.
- The court found the Complaint, read broadly and liberally, sufficiently alleges potential infringement in advertising (slogans/advertising ideas), thereby triggering Liberty Mutual's duty to defend; because liability is unresolved, indemnity and umbrella duties were not decided.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend under CGL for "personal and advertising injury" | Hershey: f'real's complaint alleges slogan/advertising idea infringement (use of "REAL"), so coverage may be implicated and insurer must defend. | Liberty: f'real's examples of advertising are limited to in‑store signage which does not fit the policy's definition of "advertisement," so exclusion i bars defense. | Held: Duty to defend exists; complaint broadly alleges slogan/advertising infringement and may fall within policy coverage, so doubts resolved for insured. |
| Scope of "advertisement" and IP exclusion i | Hershey: definition of "advertisement" is broad/ambiguous and includes slogans/advertising uses alleged. | Liberty: in‑store signage is not a "paid announcement" in print/broadcast/electronic media and thus excluded. | Held: Court did not settle definition fully but held pleadings sufficiently encompass alleged advertising use to trigger defense. |
| Breach of contract for withdrawal of defense | Hershey: Liberty breached CGL by withdrawing defense without securing declaratory relief. | Liberty: withdrawal justified because no duty to defend after Rule 12 practice. | Held: Liberty breached (duty existed and was withdrawn), but summary judgment on breach damages denied for lack of proof. |
| Duty to indemnify / umbrella insurer duty | Hershey: seeks declaration of duty to indemnify if liability found; umbrella may follow if primary exhausted. | Liberty: denies duty to indemnify based on IP exclusion. | Held: Not reached—indemnity and umbrella duties depend on liability and exhaustion; court did not decide. |
Key Cases Cited
- Am. & Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 2 A.3d 526 (Pa. 2010) (insurer's duty to defend is broader than duty to indemnify; defend if claim might fall within coverage)
- Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) (duty to defend determined solely from underlying complaint's allegations)
- Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d 1363 (Pa. 1987) (complaint need only potentially fall within coverage to trigger defense)
- Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100 (Pa. 1999) (insurer bears burden to prove applicability of policy exclusions as an affirmative defense)
- Harrison v. Cabot Oil & Gas Corp., 110 A.3d 178 (Pa. 2015) (an insurer's wrongful withdrawal of defense can constitute breach of contract)