22 F.4th 386
3d Cir.2022Background
- Vitamin Energy (insured) was sued by 5-hour Energy in ED Mich. for Lanham Act and Michigan claims: trademark infringement, false designation/false advertising, dilution, and unfair competition based on comparative ads and packaging (including a ‘‘7 HOURS of Energy’’-style slogan).
- 5-hour Energy’s complaint alleges comparative advertising that (a) represents Vitamin Energy products contain 1000 mg Vitamin C and 100% DV Vitamin B and (b) creates the misleading impression that 5-hour Energy products have less Vitamin B—i.e., a disparaging, allegedly false statement about the competitor’s products.
- Evanston (insurer) denied a defense, arguing the complaint does not allege an ‘‘Advertising Injury’’ under the policy and that multiple exclusions (Intellectual Property/unfair competition, Incorrect Description, Failure to Conform, and Knowing-acts exclusions) bar coverage.
- Vitamin Energy sued Evanston for declaratory relief, breach, and bad faith; the district court granted judgment on the pleadings for Evanston, finding no duty to defend. Vitamin Energy appealed.
- The Third Circuit, applying Pennsylvania law, reviewed whether the four corners of the complaint and policy, read liberally in favor of the insured, trigger a duty to defend and whether the asserted exclusions defeat that duty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the underlying complaint alleges an Advertising Injury (disparaging material) triggering a duty to defend | Complaint alleges false comparative statements about 5-hour Energy’s products (vitamin content), so Advertising Injury is alleged | Allegations only concern Vitamin Energy’s own product claims, not disparagement of a competitor | Court: Read liberally, complaint alleges a potentially disparaging false statement about 5-hour Energy’s products; duty to defend is triggered (possible coverage) |
| Whether Intellectual Property / "unfair competition" exclusion bars duty to defend | Exclusion should be read narrowly; disparagement/false advertising claims can be distinct from IP claims; one covered claim suffices to require defense | Exclusion covers unfair competition and IP claims, so it precludes coverage for the suit | Court: Exclusion construed in context of IP terms; does not eliminate duty to defend at this stage because disparagement claim may be covered and insurer must defend if at least one claim is potentially covered |
| Whether Incorrect Description / Failure to Conform exclusions bar coverage for the alleged comparative statements | Exclusions address insured’s own product misdescriptions; here the potentially covered allegation concerns misstatements about competitor’s products, so exclusions do not defeat duty | Exclusions apply to product-description/performance statements and thus bar coverage | Court: Exclusions do not defeat the duty to defend now—the disparagement claim remains potentially covered; broad readings that would nullify coverage language are disfavored |
| Whether Knowing-acts exclusions (knowledge of falsity) eliminate duty to defend | Knowledge allegations in complaint pertain to trademark claims, not the disparagement allegation; factual development may matter later | Complaints allege intentional acts/knowledge; exclusions therefore apply | Court: Knowing-acts exclusions do not defeat duty to defend at pleading stage; discovery could later show knowledge to trigger exclusions and end defense obligation |
Key Cases Cited
- Erie Ins. Exch. v. Moore, 228 A.3d 258 (Pa. 2020) (duty to defend broader than duty to indemnify)
- Am. & Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 2 A.3d 526 (Pa. 2010) (duty to defend includes groundless claims where there is potential coverage)
- Babcock & Wilcox Co. v. Am. Nuclear Insurers, 131 A.3d 445 (Pa. 2015) (duty to defend if complaint on its face encompasses injury potentially within policy)
- Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660 (3d Cir. 2016) (policy interpreted as a whole; ambiguous terms construed for coverage)
- Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197 (3d Cir. 2001) (insured bears burden to establish coverage)
- Gen. Accident Ins. Co. of Am. v. Allen, 692 A.2d 1089 (Pa. 1997) (a single allegation within policy scope triggers duty to defend)
- Post v. St. Paul Travelers Ins. Co., 691 F.3d 500 (3d Cir. 2012) (insurer must defend entire suit if at least one claim is potentially covered)
- Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742 (3d Cir. 1999) (alleged advertising that merely uses plaintiff’s reputation to pass off goods did not disparage competitor)
- U.S. Healthcare, Inc. v. Blue Cross of Greater Phila., 898 F.2d 914 (3d Cir. 1990) (mere puffery is not actionable)