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The Law

Legal Spotlight

A look at the latest court decisions impacting the insurance industry.
By: | January 10, 2018 • 5 min read

No Bone for Dog Groomer

Woofbeach, a dog grooming facility in Illinois, was not pleased to see Beach for Dogs pop up in the greater Chicago area. It was particularly upset when Beach for Dogs installed a sign in front of its door, displaying a dog on a beach with a palm tree.

For Woofbeach, the sign was eerily similar to its own; the company sued for trademark infringement.

A former Woofbeach customer and the Beach for Dogs founder, Steven Holland, stole elements from Woofbeach’s logo without authorization and created his own business with similar goals, alleged Woofbeach.

The suit further claimed that the Beach for Dogs logo construction confused customers into assuming affiliation between the two businesses.

To address its legal fees, Beach for Dogs turned to Sentinel Insurance Co. for defense coverage, but Sentinel refused.

The liability policy Beach for Dogs obtained from Sentinel contained a broad intellectual property (IP) exclusion that barred coverage for any claims arising out of alleged infringement, such as copyright or trademark, said Sentinel.

The insurer sought a ruling to confirm its position in the Woofbeach suit.

However, Beach for Dogs argued the policy also held a limited exception to the IP exclusion when a suit alleges only that a policyholder infringed on another’s copyright, slogan or its title in its advertising.

Therefore, the groomer argued, the limited exception on advertising should restore coverage from the insurer.

Sentinel countered that Beach for Dogs was attempting to rewrite the Woofbeach complaint, “arguing that there are allegations of copyright infringement,” yet “there are no factual allegations of copyright infringement in the Woofbeach suit.”

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The suit, instead, was specific to trademark infringement and unfair competition due to the similarities in business type and signage.

Additionally, the suit was not about advertising; it was about stealing the logo design. Sentinel argued that the term advertising referred to a wide distribution of the logo, but Woofbeach was suing specifically over the sign above Beach for Dogs’ door.

“By the express language of the IP exclusion, the existence of the trademark allegations precludes coverage for the entire underlying lawsuit,” said the judge.

Scorecard: Sentinel Insurance Co. need not defend Beach for Dogs in the trademark infringement and unfair competition suit filed by Woofbeach.

Takeaway: In the tricky world of copyright, trademark and advertising, best practice is to determine the line drawn between each. Know where subsidiary categories fall and outline what is and is not covered.

Data Leak Wasn’t ‘Published’

Software developer Innovak International Inc. was the target of a data breach.

Innovak designs, develops and sells software systems to schools across the U.S. The breach leaked personal private information, including social security numbers, addresses, employment and spousal information.

Several individuals affected by the breach filed a putative class action suit, claiming that Innovak failed to adequately protect their information, along with failing to disclose the breach in a timely manner.

They also claimed to suffer “psychic injuries,” including stress, nuisance, loss of sleep and worry.

Innovak informed its insurer, The Hanover Insurance Company, of the impending class action, asking for defense coverage under a personal and advertising injury claims policy.

Hanover reviewed its injury claims policy and noted that the insurer had “no duty to defend the insured against any ‘suit’ seeking damages for ‘personal and advertising injury’ to which this insurance does not apply.”

The policy further defined a ‘personal and advertising injury’ as a bodily (including mental) injury stemming from oral or written publication, in any manner, that violated a person’s right of privacy.

Hanover notified Innovak it would not cover costs for defense, because Innovak did not publish the material leaked in the breach. Instead, negligence led to the loss of information.

The court reviewed the underlying class action before turning to the policy. The class action alleged gross negligence, recklessness and/or wantonness against Innovak for its “failure to provide adequate security to protect their PPI.”

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The underlying action never alleged that Innovak published the stolen material. This, said the court, excused Hanover from covering the underlying class action, because it was explicitly excluded in its personal and advertising injury claims policy.

Scorecard: When reviewing the underlying class action, the court deemed that the claimants never alleged Innovak published their information. Hanover does not have to cover the defense.

Takeaway: Defense or indemnification coverage can be affected by the allegations included or omitted in an underlying claim. It would be wise to review the wording in any underlying suit before heading to court.

Insurer Liable for $9 Million

A Wisconsin trucking company, Rogers Cartage Co., hauls bulk liquid chemicals across the country. It was hit with two environmental contamination lawsuits over its alleged practices at a former truck-cleaning facility.

Rogers settled both suits for nearly $9 million. It sought indemnification for the settlements through its insurer, however, the trucking company ran into a slight problem: The contamination happened in the early 1960s.

Travelers Indemnity Co. wrote a general liability policy for Rogers between 1960 and 1961 and another from 1965 to 1986 — with written documentation to back up the coverage — yet both the insurer and the trucking company could not find a policy written for 1961 to 1965.

Travelers did not believe it needed to cover indemnification for the lawsuits. It said there was a lack of evidence of its coverage at that time.

During the court hearing, Rogers argued that the bookend policies clearly showed it had been covered by Travelers during the 1960s, meaning the insurer should provide legal coverage for the underlying suits.

Travelers countered that, because both the insured and its own records did not have proof of coverage, then it likely did not cover Rogers during the period in which it was facing environmental contamination suits.

Rogers came back with copies of the policies it possessed, examples of Travelers policy paperwork from the time period in question, a certificate of insurance from 1962 and a letter from a Travelers claims adjuster referencing renewal numbers on the bookend policies.

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“Travelers has not offered any affirmative evidence to rebut, undercut or discount Rogers’s evidence that the disputed policies contained the same coverage and endorsements as the bookend policies and specimen policies,” said the judge.

The court ruled in favor of Rogers.

Scorecard: Despite being unable to procure a written policy, Travelers is on the hook to pay $9 million in indemnification.

Takeaway: Accurate and precise documentation will lead to positive results on the insurer’s side. Lack of documents leaves too many open doors for a court to second guess.

Autumn Heisler is the digital producer and a staff writer at Risk & Insurance®. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]