911 F.3d 89
2d Cir.2018Background
- High Point Design manufactured and wholesaled the Fuzzy Babba slipper and was insured under Liberty's CGL and umbrella policies (2008–2012).
- Buyer's Direct sued High Point (counterclaim) for patent and trade dress infringement, alleging High Point "manufacturing, importing, selling and/or offering for sale" the accused slippers; it also served discovery requests seeking advertising/marketing materials and deposition testimony about advertising.
- High Point tendered defense to Liberty; Liberty denied coverage, contending the counterclaim alleged only product/trade-dress infringement, not an "advertising injury."
- The district court held Liberty had a duty to defend, construing "offering for sale" to include advertising; parties stipulated damages of $1.35M and the court entered judgment for High Point.
- On appeal, the Second Circuit affirmed that the claim could allege an "advertising injury" (so Liberty owed a defense) but held Liberty's duty to defend did not arise until it received Buyer's Direct's discovery demands (Feb 12, 2013), and remanded for calculation of defense costs from that date.
Issues
| Issue | High Point's Argument | Liberty's Argument | Held |
|---|---|---|---|
| Whether "offering for sale" in the counterclaim includes advertising such that it can trigger an "advertising injury" under the policies | "Offering for sale" can encompass advertising and thus falls within the policies' advertising-injury coverage | "Offering for sale" refers to making a product available (e.g., sale, placement) and does not mean advertising under this policy | Held: Broadly read under New York law, "offering for sale" can include advertising; claim arguably alleges advertising injury, so duty to defend exists |
| Whether insurer may consider extrinsic materials (discovery demands) in assessing duty to defend | Discovery requests for advertising materials place advertising at issue and support duty to defend | Reliance on extrinsic materials is improper or, if considered, should limit the insurer's liability timing | Held: Under New York law insurer may look beyond the complaint; discovery requests seeking advertising support reasonable possibility of coverage |
| When Liberty's duty to defend arose (timing of liability for defense costs) | Duty arose upon being served with the counterclaim (so Liberty responsible for all defense costs) | Duty arose only after Liberty had actual knowledge of facts creating a reasonable possibility of coverage — i.e., after it received the discovery demands or specific ads | Held: Duty to defend arose when Liberty received Buyer's Direct's discovery demands (Feb 12, 2013); remanded to determine fees from that date forward |
| Whether Liberty waived right to contest damages by stipulation | Stipulation resolved amount of defense costs and precluded appeal on damages | Stipulation did not waive Liberty's appellate rights to contest liability timing or amount; it only streamlined entry of judgment | Held: Stipulation did not waive Liberty's right to appeal; insurer may contest timing and thus amount owed |
Key Cases Cited
- Century 21, Inc. v. Diamond State Ins. Co., 442 F.3d 79 (2d Cir. 2006) ("marketing" can encompass advertising for duty-to-defend analysis)
- R.C. Bigelow, Inc. v. Liberty Mut. Ins. Co., 287 F.3d 242 (2d Cir. 2002) (trade-dress/packaging displayed in advertisements can give rise to advertising-injury coverage)
- Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61 (1991) (insurer may look beyond the four corners of the complaint when assessing duty to defend)
- Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435 (2002) (if allegations are even potentially within policy language, duty to defend is triggered)
- Servidone Constr. Corp. v. Sec. Ins. Co. of Hartford, 64 N.Y.2d 419 (1985) (insurer may deny defense only if no possible factual or legal basis for coverage exists)