advertising injury insurance covers false advertising/patent case despite exclusions

In re Indian Harbor Ins. Co. v. SharkNinja Operating LLC,
No. N20C-02-014 PRW CCLD (Del. Super. Ct. Nov. 19, 2020)

Indian Harbor provided SharkNinja with personal and
advertising injury insurance; it was sued for false advertising and patent
infringement by a competing vacuum manufacturer. Under Massachusetts law,
Indian Harbor had a duty to defend. The relevant covered offenses:

(d) Oral or written publication, in
any manner, of material that slanders or libels a person or organization or disparages
a person’s or organization’s goods, products or services; …

(f) The use of another’s
advertising idea in your “advertisement”; or

(g) Infringing upon another’s
copyright, trade dress or slogan in your “advertisement”[.]

There were also exclusions for failure to conform “with any
statement of quality or performance made in your ‘advertisement’ ” and “infringement
of copyright, patent, trademark or other intellectual property rights.”

 iRobot then sued,
alleging that “SharkNinja deployed a smear campaign calculated to target, and
to assert false advantages over, iRobot’s vacuum cleaners, and to mislead
consumers about the legitimacy and fairness of iRobot’s pricing in comparison
to its own pricing.”In Massachusetts, “[a]n insurer’s duty to defend is
triggered where the allegations in the complaint ‘are reasonably susceptible of
an interpretation that states or roughly sketches a claim covered by the policy
terms,’” even if “the merits of the claim are weak or frivolous” or “the
insurer could eventually be determined to have no duty to indemnify the
insured.” A possibility of coverage is enough; the allegations of the
underlying complaint need not “specifically and unequivocally” make out a covered
claim. The manner in which the plaintiff presents her accusations need not
“mirror the policy’s coverage language.”

The underlying claim “roughly sketche[d]” personal and
advertising injury. For example, iRobot alleged that SharkNinja “directly
targets iRobot’s Roomba vacuums … [by] expressly and falsely claim[ing] that
the Shark IQ offers the same technological advancements as iRobot, but at less
than half the price;” makes “false comparisons to iRobot’s vacuums [that]
threaten iRobot with … reputational harm;” etc. This singling out of iRobot
for negative advertising potentially “disparaged” iRobot for purposes of
coverage.

So too with “use of another’s advertising idea” injury. This
concept encompasses myriad meanings, including: “an idea about the solicitation
of business and customers;” “ideas in connection with marketing and sales and
for the purpose of gaining customers;” and “an idea for calling public
attention to a product or business, especially by proclaiming desirable
qualities so as to increase sales. …” In the underlying complaint, iRobot
provided a line-item chart detailing the ways in which SharkNinja “mimic[ked]”
iRobot’s marketing claims about the Roomba’s “selected cleaning” and
“recharge/resume” features to influence purchasing decisions.

Indian Harbor’s arguments failed because “Massachusetts
courts routinely reject narrow, insurer-preferred interpretations of undefined
policy terms that would winnow broad defense coverage.”

What about the failure to conform exclusion? Indian Harbor
failed to meet its burden to show that the underlying complaint was really
about SharkNinja’s own products, not iRobot’s products. At the very least, some
of iRobot’s complaint was about negative things said about iRobot. Anyway, the
failure to conform exclusion “cannot be fairly read also to bar coverage
whenever SharkNinja couples those with misleading or disparaging statements
about a competitor’s products. Otherwise, much of the personal and advertising
injury coverage would be nullified—a result clearly contrary to SharkNinja’s
reasonable expectations.”

And the IP exclusion may well plainly exclude any defense
against the patent claims, but: “[T]he general rule in Massachusetts in the
general liability insurance context is that the insurer must defend the entire
lawsuit if it has a duty to defend any of the underlying counts in the
complaint.”  

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