162 F. Supp. 3d 547
E.D. Va.2016Background
- Crawl Space Doors Systems, Inc. (CSD) held a Selective Way commercial liability policy for 9/5/2009–9/5/2010; Selective denied coverage for a 2013 suit by Smart Vent alleging false advertising, unfair competition, negligent misrepresentation, and trademark infringement.
- Smart Vent's complaint alleges CSD misrepresented its products (FEMA compliance, coverage area, patent protection, superiority claims) and used Smart Vent’s trademark in website coding (tags/meta-tags).
- CSD tendered defense; Selective initially denied, then agreed to defend under a reservation of rights. Selective filed this declaratory judgment action seeking a determination that it owes no duty to defend or indemnify.
- Both parties moved for summary judgment; the court applied Virginia law and the Eight Corners rule to determine whether the policy’s "personal and advertising injury" coverage is triggered and whether policy exclusions apply.
- The court assumed arguendo that disparagement or "use of another’s advertising idea" coverage could be triggered, but found two unambiguous exclusions—Failure to Conform and an Intellectual Property exclusion—bar coverage for the claims at issue.
Issues
| Issue | Plaintiff's Argument (Selective) | Defendant's Argument (CSD) | Held |
|---|---|---|---|
| Whether Selective must defend/indemnify under the policy’s disparagement or advertising-idea coverage | No—even if coverage triggered, exclusions apply to bar coverage | Yes—allegations of disparagement and use of another’s advertising idea trigger coverage | Held for Selective: exclusions (Failure to Conform; Intellectual Property) bar coverage |
| Whether the Failure to Conform exclusion applies to Smart Vent’s advertising/false‑representation claims | Yes—the core allegation is that CSD’s products failed to perform as advertised, so the exclusion applies | No—claims include disparagement of Smart Vent’s products, so exclusion is inapplicable | Held for Selective: exclusion unambiguously covers alleged failures of CSD products to conform to advertised quality/performance |
| Whether trademark/meta-tag allegations fall within advertising-idea coverage | Even if covered, Intellectual Property and Unauthorized Use exclusions bar coverage | Meta-tag/tag use is distinct and may not be covered by exclusions | Held for Selective: Intellectual Property exclusion bars trademark-based claims (so no coverage); court did not need to resolve Unauthorized Use exclusion |
| Whether Selective has duty to indemnify if no duty to defend | If no duty to defend (due to exclusions), there can be no duty to indemnify | N/A (CSD sought both defense and indemnity) | Held for Selective: no duty to indemnify where exclusions remove duty to defend |
Key Cases Cited
- Brenner v. Lawyers Title Ins. Corp., 240 Va. 185 (Virginia supreme court) (duty to defend arises when complaint alleges facts that potentially fall within policy coverage)
- Seabulk Offshore, Ltd. v. American Home Assur. Co., 377 F.3d 408 (4th Cir.) (apply Virginia contract principles to insurance policies)
- Superformance Int’l, Inc. v. Hartford Cas. Ins. Co., 332 F.3d 215 (4th Cir.) (intellectual property exclusions bar coverage for trademark‑based unfair competition claims)
- Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 692 S.E.2d 605 (N.C. 2010) (interpreting Failure to Conform exclusion to exclude injuries arising from an insured’s product failing to perform as advertised)
- State Auto Property & Cas. Ins. Co. v. Travelers Indem. Co., 343 F.3d 249 (4th Cir.) (discussing scope of advertising‑injury coverage)