932 F.3d 268
4th Cir.2019Background
- Beach Mart (insured) and L&L Wings (counterclaimant) dispute use of the WINGS mark; parties had a 2005 agreement restricting Beach Mart’s standalone use of WINGS after Dec. 31, 2005.
- L&L alleged Beach Mart continued to use WINGS and a similar slogan and storefront façade after 2005, and sent a termination letter in August 2011; L&L asserted breach of contract and breach of the covenant of good faith and fair dealing.
- Penn National issued Businessowner and Umbrella liability policies to Beach Mart effective Jan. 1, 2008 (renewed annually) that cover advertising injury but exclude (1) trademark infringement (except slogans) and (2) publications first published before the policy period (prior publication exclusion).
- Beach Mart sought defense and indemnity; Penn National initially reserved rights, later filed a declaratory judgment action claiming no duty to defend based on the prior publication exclusions.
- The district court granted judgment on the pleadings for Penn National, holding pre-2008 continuous use made the claims excluded; the Fourth Circuit reversed, finding the exclusions did not clearly eliminate the duty to defend.
Issues
| Issue | Plaintiff's Argument (Penn National) | Defendant's Argument (Beach Mart) | Held |
|---|---|---|---|
| Whether prior-publication exclusions bar duty to defend for L&L’s counterclaims | Pre-2008 publications and uninterrupted use meant injuries arose from material first published before policy period, so exclusion applies | Some offending publications and distinct wrongful acts occurred during the policy period and differ in substance from pre-coverage publications, so exclusion does not bar defense | Reversed: exclusion did not eliminate duty to defend because post-coverage publications were arguably different and gave rise to fresh wrongs |
| Whether similar/related advertising conduct pre- and post-coverage should be treated as a continuous single wrong | All alleged conduct was part of a common advertising objective and thus continuous, so exclusion applies | Post-coverage conduct included distinct harms (e.g., breach of 2005 Agreement, slogan use, façade claims) and may be separate, so duty to defend remains | Court declined to adopt broad “common advertising objective” to defeat coverage here; facts support separate post-coverage wrongs |
| Whether slogan and trade dress allegations are excluded as trademark infringement | Policy excludes trademark infringement but expressly does not exclude slogans; Penn National argued overall advertising campaign is precluded | Beach Mart argued slogan and façade claims are distinct and fall within covered advertising injury | The court treated slogans and façade allegations as potentially covered and not clearly barred by the prior-publication exclusion |
| Whether insurer’s denial defeated Beach Mart’s counterclaims (breach, bad faith, UDTP) | No duty to defend, so no breach or bad faith | If duty to defend exists, Beach Mart’s counterclaims survive | Because duty to defend survives, court erred in dismissing Beach Mart’s counterclaims; remanded |
Key Cases Cited
- Bain v. Unitrin Auto & Home Ins. Co., 708 S.E.2d 410 (N.C. Ct. App.) (pleadings facts taken as true for coverage analysis)
- Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 340 S.E.2d 374 (N.C. 1986) (insurer’s duty to defend broader than duty to indemnify; compare policy to complaint)
- Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 692 S.E.2d 605 (N.C.) (insurance-policy construction principles; resolve ambiguities against insurer)
- Kubit v. MAG Mut. Ins. Co., 708 S.E.2d 138 (N.C. Ct. App.) (prior-publication exclusion bars continuous republication of substantially same material; test requires publications differ in substance)
- Hanover Ins. Co. v. Urban Outfitters, Inc., 806 F.3d 761 (3d Cir.) (common advertising objective approach discussed)
- St. Surfing, LLC v. Great Am. E & S Ins. Co., 776 F.3d 603 (9th Cir.) (prior-publication exclusion analysis and when publications are arguably pre-coverage)
- Taco Bell Corp. v. Cont’l Cas. Co., 388 F.3d 1069 (7th Cir.) (duty to defend determined by complaint; separate subordinate ideas may be separate torts)
- MicroStrategy Inc. v. Motorola, Inc., 245 F.3d 335 (4th Cir.) (distinction between slogans and trademarks in certain contexts)