Ninth Circuit Affirms That Prior Publication Exclusion Barred a Defense Obligation to Skateboard Manufacturer
Authored By: Linda Bondi Morrison, Partner in the Orange County Office and Ryan Luther, Associate in the Orange County Office
In Street Surfing, LLC v. Great American E&S Insurance Company, 2014 U.S. App. LEXIS 10737, Case No. 12-55351 (9th Cir. June 10, 2014), the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s decision on summary judgment that Great American had no obligation to defend its insured, Street Surfing, in an underlying action for trademark infringement.
Rhyn Noll, the owner of the registered trademark "Streetsurfer," sued Street Surfing in June 2008, asserting causes of action for trademark infringement, unfair competition and unfair trade practices under federal and California law ("Noll Action"). The complaint alleged that Street Surfing’s sale, distribution and advertisement of its two-wheeled, inline skateboard called "the Wave," which displayed the name "Street Surfing," caused a likelihood of confusion as to Mr. Noll’s "Streetsurfer" trademark, which Mr. Noll used to sell skateboards and skateboard accessories.
Great American issued two consecutive liability policies to Street Surfing, the first incepting in August 2005. In its application for the first Great American policy, Street Surfing disclosed that it had been selling the Wave to retail stores since about December 2004, and had already generated approximately $600,000 in sales. The application also listed Street Surfing’s website address, www.streetsurfing.com, and confirmed that all of the Wave skateboards displayed Street Surfing’s logo.
Great American conceded for purposes of summary judgment only that the Noll Action potentially alleged the "personal and advertising injury" offense of "[t]he use of another’s advertising idea in [Street Surfing’s] advertisement." However, Great American denied, and the Court rejected, Street Surfing’s contention that the Noll Action also alleged the "personal and advertising injury" offense of "infringing upon another’s … slogan in [Street Surfing’s] ‘advertisement.’" The Court concluded that there were no allegations or evidence that Mr. Noll had used his "Streetsurfer" trademark as a "slogan," defined as "’a brief attention-getting phrase used in advertising or promotion’ or ‘[a] phrase used repeatedly , as in promotion.’" The Court also confirmed that Street Surfing’s own purported use of its name as a "slogan," was irrelevant to the application of the offense.
The Court affirmed that the prior publication exclusion in the policies, which barred coverage for "’personal and advertising injury’ arising out of oral or written publication of material whose first publication took place before the beginning of the policy period," applied. Specifically, it concluded that Street Surfing’s display of its logo on the Wave constituted the publication of allegedly infringing material in Street Surfing’s "advertisement" prior to the inception of the policies. The Court affirmed that Great American had properly relied upon Street Surfing’s application for coverage to deny a defense.
Significantly, the Court rejected Street Surfing’s argument that its subsequent infringing activity on new products during the policy periods were "fresh wrongs" which rendered the exclusion inapplicable. As explained by the Court, "if Street Surfing’s post-coverage publications were wrongful, that would be for the same reason its pre-coverage advertisement was allegedly wrongful: they used Noll’s advertising idea in an advertisement."
In this case, Street Surfing argued that the allegedly infringing conduct in which it had engaged after the Great American policies incepted was sufficiently different from its pre-policy conduct so as to make the prior publication exclusion inapplicable. It improperly focused on the difference in its own conduct to argue the exclusion did not apply. The Ninth Circuit was not fooled. It rejected Street Surfing’s argument that its later conduct constituted "fresh wrongs" and properly placed the focus on whether Street Surfing’s post-policy conduct infringed upon Noll’s same advertising idea, "Streetsurfer." It summed up the case as involving "a company that began a wrongful course of conduct, obtained insurance coverage, continued its course of conduct, then sought a defense from its insurer when the injured party sued."
It is important to note the significance the underwriting materials played in this decision. The district court and Ninth Circuit were allowed to consider the impact of this extrinsic evidence on the duty to defend under California law. Not all jurisdictions, however, will allow an insurer to consider information extraneous to the policy and the complaint to defeat a duty to defend.
Tressler LLP attorneys Linda Bondi Morrison and Ryan Luther handled this matter on behalf of Great American E&S Insurance Company.
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