923 N.W.2d 550
Wis.2019Background
- Ixthus Medical Supply (Ixthus) distributed Abbott’s lower‑priced international FreeStyle glucose test strips in the U.S.; Abbott sued in federal court alleging trademark, trade dress, dilution, deceptive practices, RICO and related claims. Ten claims remained after some dismissals.
- Ixthus tendered defense to its insurer West Bend under a Commercial General Liability (CGL) policy that includes Coverage B for "personal and advertising injury."
- West Bend denied coverage and sued for declaratory judgment in Wisconsin circuit court; the circuit court granted West Bend summary judgment, finding the knowing‑violation exclusion barred coverage.
- The Wisconsin Court of Appeals reversed, holding Abbott’s complaint alleged potentially covered advertising‑injury claims that did not require proof of knowing misconduct, so West Bend had a duty to defend.
- The Wisconsin Supreme Court affirmed: it held Abbott’s complaint satisfied the advertising‑injury test (including causation) and that neither the knowing‑violation nor criminal‑acts exclusions eliminated West Bend’s duty to defend because at least one pleaded claim could be established without proof of intentional or criminal conduct.
Issues
| Issue | West Bend (Plaintiff‑Respondent) Argument | Ixthus/Abbott (Defendants‑Appellants/Underlying Plaintiff) Argument | Held |
|---|---|---|---|
| Whether Abbott’s complaint alleged a causal connection between Ixthus’s advertising activity and Abbott’s injury such that Coverage B applies | Complaint focuses on importation/distribution, not advertising; no causal link to advertising alleged | Complaint alleges defendants (including Ixthus) used Abbott’s trademarks/trade dress in websites, emails and displays, causing consumer confusion, lost rebates and damage to goodwill | Held: causal connection sufficiently alleged; advertising activity plausibly "contributed materially" to injury, so initial coverage exists |
| Whether the knowing‑violation exclusion bars West Bend’s duty to defend | Complaint alleges intentional, willful scheme; exclusion precludes coverage because acts were "with knowledge" they violated Abbott’s rights and caused injury | Many pleaded claims (e.g., Lanham Act dilution, NY dilution, NY GBL §349) are strict liability or do not require intent, so the exclusion cannot defeat duty to defend where any claim is potentially covered | Held: exclusion does not apply because at least one pleaded claim can be established without proof of knowing or intentional misconduct; duty to defend remains |
| Whether the criminal‑acts exclusion bars West Bend’s duty to defend | Complaint alleges criminal conduct (e.g., mail/wire/insurance fraud), so exclusion applies to preclude coverage | Several claims (Lanham Act violations, dilution) are non‑criminal; if any claim is potentially covered the insurer must defend entire suit | Held: Court declined to decide the underlying question whether criminal act requires conviction/charge, but held exclusion does not eliminate duty to defend because complaint pleads non‑criminal covered claims |
| Whether West Bend could raise fortuity/public policy/reasonable expectation to avoid duty to defend | (Raised in Supreme Ct.) insurer argued these doctrines eliminate duty | (Not fully developed by West Bend below) Ixthus/Abbott opposed | Held: Court did not reach these arguments because they were not adequately raised or developed below |
Key Cases Cited
- Water Well Solutions Service Group, Inc. v. Consolidated Insurance Co., 369 Wis. 2d 607, 881 N.W.2d 285 (Wisc. 2016) (framework for duty‑to‑defend analysis and three‑step test)
- Fireman’s Fund Insurance Co. v. Bradley Corp., 261 Wis. 2d 4, 660 N.W.2d 666 (Wisc. 2003) (duty to defend is broader than duty to indemnify; any potentially covered claim triggers defense)
- R.C. Bigelow, Inc. v. Liberty Mutual Insurance Co., 287 F.2d 242 (2d Cir. 2002) (advertising must have "contributed materially" to the injury for causation test)
- Acuity v. Ross Glove Co., 344 Wis. 2d 29, 817 N.W.2d 455 (Wis. Ct. App. 2012) (knowing‑violation exclusion does not bar defense if complaint includes Lanham Act/dilution claims that do not require intent)
- Air Engineering, Inc. v. Industrial Air Power, LLC, 346 Wis. 2d 9, 828 N.W.2d 565 (Wis. Ct. App. 2013) (same principle: allegations of willful conduct do not negate potential coverage when some claims do not require intent)
- Marks v. Houston Casualty Co., 369 Wis. 2d 547, 881 N.W.2d 309 (Wisc. 2016) (policy exclusions are narrowly construed at duty‑to‑defend stage)