Insurer Owed Defense of Trade Dress Case, But Not ITC Case

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A recent decision from the State of Washington found that an insurer had a duty to defend a patent and trade dress infringement case brought against its insured, but did not owe a duty to defend a related action filed in the International Trade Commission.

Australia Unlimited (AU), a Washington corporation, and producer, importer, and distributor of NothinZ brand shoes sued Hartford Casualty Insurance after the company declined AU’s tender of defense of certain actions filed against AU by Crocs.   In 2006, Crocs filed a federal court lawsuit against AU and other defendants and a proceeding before the U.S. International Trade Commission (ITC).  Both cases involved claims for patent and trade dress infringement, violation of the Colorado Consumer Protection Act, and common law unfair competition.  AU tendered defense of the cases to Hartford which issued commercial general liability (CGL) and umbrella policies. Hartford denied the tender of both matters.  In its action against Hartford, AU asserted claims for breach of contract, bad faith, and violation of Washington’s state Consumer Protection Act for Hartford’s refusal to defend AU.  The claims brought by Crocs were ultimately settled by AU.

The court of appeals first noted the distinction between an insurer’s duty to defend (based on potential liability) and the duty to indemnify, which requires actual liability and actual coverage under the policy.  The CGL policy contained an exclusion applicable to Crocs’s claims, but the umbrella policy did not.  Under that policy’s definition of “Personal and advertising injury” the court found the trade dress allegations, which included references to AU’s marketing and sales efforts, and the prayer for damages from the “manufacture, marketing, sale, offering for sale, and/or distribution of products or services” triggered Hartford’s duty to defend the federal court lawsuit seeking damages.

The court summarily determined that Hartford, however, was not required to defend the ITC case, an action regarding unfair practices in import trade. In that trade remedy action, Crocs requested the ITC to investigate and determine its patent and trade dress infringement claims.  As a remedy, it sought a cease and desist order and a permanent exclusionary order that would preclude AU and the other respondents from importing and entering infringing products into the U.S.  The court noted that Hartford’s umbrella policy only required it to defend claims seeking damages.  The court reasoned that since the ITC does not have authority to order monetary damages, Hartford properly declined the defense of the ITC action.

As intellectual property cases continue unabated despite the current economic conditions, companies facing infringement allegations should look to promptly tender the defense of those claims and lawsuits and aggressively pursue coverage if necessary.  The difference in not doing so can be measured in tens and hundreds of thousands, if not millions, of dollars in avoided defense, settlement, and verdict costs.

Disclaimer: This Litigation Law Alert is provided for informational purposes only and is not intended to serve as or provide legal advice relating to a particular matter. If you would like to discuss a litigation, arbitration or dispute matter please contact Jon P. Yormick, Managing Attorney, [email protected], Jason B. Desiderio, Associate, [email protected], or Nicholas A. Panagopoulos, II, Associate, [email protected], or call toll free (U.S. and Canada) at +1.866.967.6425.

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