374 F. Supp. 3d 334
S.D. Ill.2019Background
- Plaintiffs (Nanette Lepore, related entities and individuals) seek a declaration that Hartford Fire Insurance Company must defend them in a New York state suit (the "NL Suit") alleging breach of contract, unfair competition, tortious interference, and related claims arising from sale/licensing of "Purchased IP" (trademarks, copyrights, designs, social media accounts).
- Hartford issued Commercial General Liability and Umbrella policies covering "personal and advertising injury," but containing (1) an IP Exclusion that bars coverage for "personal and advertising injury" arising out of actual or alleged infringement and further excludes any injury alleged in a suit that also alleges IP infringement, and (2) a Breach Exclusion that bars coverage for "personal and advertising injury" arising out of a breach of contract.
- NL Complaint accuses Lepore Parties of using the Purchased IP beyond the licensed scope, harming goodwill (including allegedly offensive collaborations and political social-media use), and violating non-compete and non-disparagement provisions; it pleads unfair competition and tortious interference claims that explicit ly reference misuse of the Licensed Marks.
- Hartford denied defense and indemnity; plaintiffs sued Hartford in federal court for a duty to defend and for breach of the covenant of good faith and fair dealing. The parties cross-moved for summary judgment on duty to defend (and Hartford moved on the bad-faith claim).
- The district court, applying New York law on contract and insurance interpretation and the broad New York duty to defend standard, held the IP Exclusion and the Breach Exclusion unambiguous and applicable, and granted Hartford summary judgment; it also dismissed the bad-faith claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the IP Exclusion bars Hartford's duty to defend the entire NL Suit | The NL Suit does not expressly plead trademark infringement; exclusion should be read narrowly and not wipe out otherwise-covered claims; paragraph 2 should be limited to express or adjudicated IP claims | The IP Exclusion unambiguously excludes any injury alleged in a suit that also contains allegations of IP infringement; NL Complaint alleges misuse/misappropriation of Purchased IP so the whole suit is excluded | IP Exclusion is unambiguous and, because the NL Complaint alleges violations of Purchased IP, bars coverage for the entire suit |
| Whether the Breach Exclusion bars coverage for NL Suit claims | Some tort claims (e.g., defamation/disparagement) are independent of contract and therefore not barred; absence of "actual or alleged" language limits exclusion to actual breaches | Nearly all claims depend on the purchase/license agreements (the Purchased IP and restrictions stem from contract), so injuries "but for" the contracts would not exist; absence of "actual or alleged" language does not limit the exclusion | Breach Exclusion applies: NL claims arise out of contractual breaches and are excluded; absence of "actual or alleged" language does not save coverage |
| Whether Hartford breached the covenant of good faith and fair dealing by denying defense | Hartford acted in bad faith and its denial was grossly negligent and patterned | Hartford relied on unambiguous policy exclusions and controlling precedents; denial was a reasonable interpretation | No viable independent tort claim for bad faith; dismissal warranted because denial was a legitimate exercise of policy interpretation |
| Whether ambiguities or policy placement render exclusions unenforceable | Exclusions are hidden/ambiguous and should be construed against insurer; ambiguous language should favor insured | Exclusions are prominent, labeled, and drafted clearly; courts have enforced similar language | Exclusions were clear, conspicuous, and unambiguous; insured’s ambiguity arguments rejected |
Key Cases Cited
- Automobile Ins. Co. of Hartford v. Cook, 7 N.Y.3d 131 (N.Y. 2006) (New York Court of Appeals on the broad duty to defend and principle that insurer must defend unless the complaint is solely within exclusions)
- Allstate Ins. Co. v. Mugavero, 79 N.Y.2d 153 (N.Y. 1992) (analysis depends on facts pleaded, not labels in the underlying complaint)
- TELA Bio, Inc. v. Federal Ins. Co., 313 F. Supp. 3d 646 (E.D. Pa. 2018) (upholding broad IP-exclusion language that bars all allegations in a suit containing IP-violation allegations)
- Hugo Boss Fashions, Inc. v. Federal Ins. Co., 252 F.3d 608 (2d Cir. 2001) (breach-exclusion analysis where trademark rights predated contract and thus claims could exist independent of contract)
- Dollar Phone Corp. v. St. Paul Fire & Marine Ins. Co., [citation="514 F. App'x 21"] (2d Cir. 2013) (summary order affirming that absence of "actual or alleged" language in an exclusion does not obligate insurer to defend allegations that, if proven, would fall outside coverage)