43 F. Supp. 3d 271
S.D.N.Y.2014Background
- USF&G sued Ashley Reed and principals for a declaratory judgment that three liability policies (2003–2006) do not require indemnification for judgments entered against Ashley Reed for selling counterfeit Fendi goods (Fendi Action) and for indemnity to Burlington Coat Factory (BCF Action).
- Fendi obtained summary judgment on liability for willful trademark counterfeiting covering 2001–2006; the district court awarded treble profits, and judgment of $29,855,043 was entered in 2013. Ashley Reed was ordered to indemnify BCF for $248,257.14 in 2012.
- The Policies provide coverage for sums the insured is legally obligated to pay as "damages because of ... ‘advertising injury,’" defined by four enumerated categories, including "the use of another’s advertising idea in your ‘advertising.’"
- The Policies contain exclusions for advertising injury "done by or at the direction of the insured with knowledge of its falsity" and for injuries whose "first publication took place before the beginning of the policy period."
- Defendants sought indemnification under the advertising-injury provision; USF&G argued the awards arose from sale of counterfeit goods (not advertising), the awards were disgorgement of profits (not insured "damages"), and exclusions (knowledge/prior publication) bar coverage. The district court granted USF&G’s cross-motion and denied defendants’ motion for summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Fendi and BCF judgments are "damages because of ... advertising injury" under the Policies | USF&G: awards are not based on advertising; they arise from sale of counterfeits and thus fall outside advertising-injury coverage | Defendants: trademark infringement necessarily implicates advertising; use of marks in commerce constitutes advertising injury and profits disgorgement are "damages" | Held for USF&G: liability was based on sale/offering for sale of counterfeit goods, not advertising; no advertising injury, so no indemnity |
| Whether the Policies’ prior-publication exclusion bars coverage | USF&G: even if an advertising injury, first publication (sales) preceded policy periods, so exclusion applies | Defendants: prior-publication exclusion should be limited to the two categories that expressly mention "oral or written publication" and not apply to trademark/infringement category | Held for USF&G: exclusion unambiguously applies to all "advertising injury" categories; sales before policy period trigger exclusion |
| Whether Plaintiffs' forfeiture/disgorgement awards constitute insured "damages" | USF&G: disgorgement of profits (and trebling) do not constitute "damages" under the Policies; may be uninsurable as a matter of public policy | Defendants: disgorged profits are a form of damages tied to trademark injury and thus covered | Court did not decide: because no advertising injury, the court did not reach whether disgorgement qualifies as insured "damages." |
| Whether James Ressler’s bad-faith refusal-to-settle counterclaim survives summary judgment | USF&G: no bad faith because there was an arguable basis to deny coverage and USF&G did not exercise exclusive control over defense or settlement | Ressler: USF&G lacked an arguable basis when reserving rights and controlled the defense | Held for USF&G: bad-faith claim fails because there was no coverage and no evidence USF&G had exclusive control over defense/settlement |
Key Cases Cited
- Bridge Metal Indus., LLC v. Travelers Indem. Co., [citation="559 F. App'x 15"] (2d Cir. 2014) (distinguishing sale of infringing goods from advertising-based injury for coverage)
- Olin Corp. v. Am. Home Assurance Co., 704 F.3d 89 (2d Cir. 2012) (insurance policies interpreted by plain meaning; avoid rendering clauses superfluous)
- Allianz Ins. Co. v. Lerner, 416 F.3d 109 (2d Cir. 2005) (insurer’s duty to indemnify arises only if claim falls within policy coverage)
- Servidone Constr. Corp. v. Sec. Ins. Co. of Hartford, 64 N.Y.2d 419 (N.Y. 1985) (duty to defend measured by pleadings; duty to indemnify by actual basis of liability)
- Century 21, Inc. v. Diamond State Ins. Co., 442 F.3d 79 (2d Cir. 2006) (distinction between sale of infringing products and advertisement of such products in trademark context)