United States Fidelity & Guaranty Co. v. Fendi Adele S.R.L.
2016 U.S. App. LEXIS 8973
| 2d Cir. | 2016Background
- Ashley Reed Trading sold handbags and accessories bearing counterfeit Fendi trademarks to retailers including Burlington; Ashley Reed was insured under USF&G general liability policies (2003–2006) containing an "advertising injury" coverage clause.
- Fendi sued Ashley Reed (First Action) for trademark counterfeiting, false designation, and dilution; judgment on remand trebled damages and awarded fees, totaling about $34.65 million. USF&G defended under reservation of rights but denied indemnity.
- Burlington was sued by Fendi (Second Action) and secured a judgment against Ashley Reed via third-party claims for approximately $248,257 (profits and fees); Burlington intervened in the coverage action to seek indemnification.
- USF&G brought this declaratory action seeking a ruling that it had no duty to indemnify for the trademark judgments because the losses were not "advertising injury" under the policies.
- The district court granted summary judgment for USF&G; the Second Circuit affirmed, holding the injuries arose from sale of counterfeit goods, not advertising, and coverage was excluded by a falsity exclusion as to intentional misrepresentation.
Issues
| Issue | USF&G's Argument | Ashley Reed / Burlington / Fendi's Argument | Held |
|---|---|---|---|
| Whether losses from sale of counterfeit goods constitute "advertising injury" under policies | No — injury arose from sales, not insured "advertising"; thus no duty to indemnify | Yes — use of Fendi mark on goods is "advertising" (per policy definition) and therefore covered under subsections (c) or (d) | Held for USF&G: sales were not advertising; no coverage under advertising-injury clauses |
| Whether subsection (c) (use of another's advertising idea) or (d) (infringement in your advertising) applies | These require misuse in the insured's advertising; not satisfied where there was no advertising | The product labeling/use of mark functioned as advertising and falls within policy definitions | Held for USF&G: neither subsection applies because the record shows no advertising activities tied to the infringement |
| Whether falsity/known-falsity exclusion bars coverage even if advertising found | Exclusion applies because insured knowingly published false designation of origin | Insureds dispute or downplay the intentional-knowledge element | Held for USF&G: exclusion applies (Ashley Reed knowingly used counterfeit marks), so coverage barred in any event |
| Whether insurer had duty to defend vs. duty to indemnify for advertising injury | Duty to defend may be broader, but duty to indemnify depends on actual basis of liability | Insureds point to prior cases requiring defense where pleadings alleged marketing/advertising | Held: duty to indemnify assessed by actual basis; here liability based on sales, so no indemnity (district had previously addressed defense scope) |
Key Cases Cited
- A. Meyers & Sons Corp. v. Zurich Am. Ins. Grp., 74 N.Y.2d 298 (N.Y. 1989) (advertising-injury coverage requires injury arising from insured's advertising activities)
- Century 21, Inc. v. Diamond State Ins. Co., 442 F.3d 79 (2d Cir. 2006) (duty to defend under advertising clause may be broad when complaint alleges marketing; did not decide indemnity)
- Int’l Bus. Machs. Corp. v. Federal Ins. Co., 18 N.Y.3d 642 (N.Y. 2012) (policy ambiguity analysis and contra proferentem in insurance contracts)
- Belt Painting Corp. v. TIG Ins. Co., 100 N.Y.2d 377 (N.Y. 2003) (construe policy in light of common speech and reasonable business expectations)
- VAM Check Cashing Corp. v. Federal Ins. Co., 699 F.3d 727 (2d Cir. 2012) (insurance contract interpretation reviewed de novo)
- Am. Mfrs. Mut. Ins. Co. v. Quality King Distribs., Inc., 16 A.D.3d 607 (N.Y. App. Div. 2005) (sale of counterfeit goods not an advertising injury)
- Atl. Mut. Ins. Co. v. Terk Techs. Corp., 309 A.D.2d 22 (N.Y. App. Div. 2003) (duty to indemnify determined by actual basis of liability, not pleadings)
- XL Specialty Ins. Co. v. Loral Space & Commc’ns, Inc., 82 A.D.3d 108 (N.Y. App. Div. 2011) (restitution of ill-gotten gains is generally uninsurable)
- Vigilant Ins. Co. v. Credit Suisse First Boston Corp., 10 A.D.3d 528 (N.Y. App. Div. 2004) (directing return of improperly acquired funds is not an insurable loss)