9th Circuit News: January 7, 2016

9th Circuit Upholds Plain Language of Intellectual Property Exclusion to Bar Coverage of a Trademark Infringement Claim 

Tressler attorneys David Simantob and Elizabeth Musser obtained the District Court win for Hartford. David Simantob, Linda Hoshide and Kimberly Sou handled this matter as part of the appellate team in the 9th Circuit.

In Keating Dental Arts, Inc. v. Hartford Casualty Ins. Co., Case No. 13-56775 (9th Cir. Dec. 24, 2015), the U.S. Court of Appeals for the 9th Circuit affirmed the judgment of the District Court that the insured, Keating Dental Arts, Inc. (Keating), was not entitled to coverage for the costs of its defense in the underlying trademark infringement action, James R. Glidewell Dental Ceramics, Inc., dba Glidewell Laboratories v. Keating Dental Arts, Inc., No. 8:11-CV-01309-DOC-AN (C.D. Cal.) (the Glidewell Action), under a liability policy issued by Hartford Casualty Insurance Company (Hartford).

Keating argued the Glidewell Action was a claim for disparagement or implied disparagement that is covered under the Hartford policy. The Glidewell Action alleged that Glidewell and Keating are both manufacturers of trademarked dental restorative products. Glidewell markets its products under the "BRUXZIR" trademark while Keating markets its products under the "KDZ BRUXER" trademark. Glidewell alleged that Keating used a similar trademark in order to sell similar products in the same market. Glidewell further alleged that these actions by Keating would likely cause consumers to confuse Keating’s products for Glidewell’s, and thereby diminish the value of Glidewell’s trademark.

The policy provided liability coverage for "personal and advertising injury" arising out of "publication of material that...disparages a person’s or organization’s goods, products, or services." However, the policy further provided that coverage did "not apply to...[p]ersonal and advertising injur[ies]...[a]rising out of any violation of any intellectual property rights such as copyright, patent, trademark, trade name, trade secret, service mark or other designation of origin or authenticity" (the IP exclusion).

The 9th Circuit found that "all of the stated claims against Keating are based on trademark infringement, and all of the factual allegations in the complaint track the elements of a trademark claim." Without deciding whether the underlying action sufficiently alleged an implied disparagement claim, the 9th Circuit held that the IP exclusion nevertheless barred coverage because "any such [implied disparagement] claim nonetheless arises out of potential consumer confusion caused by the alleged trademark violation."

Tressler Comments

The 9th Circuit recognized that the Glidewell Action was a trademark infringement case and nothing more, and thus, barred from coverage by the policy’s IP exclusion. As the first cause of action for trademark infringement was incorporated into each of the remaining causes of action, the 9th Circuit found that "all of the stated claims against Keating are based on trademark infringement, and all of the factual allegations in the complaint track the elements of a trademark claim." Therefore, the 9th Circuit correctly held that the IP exclusion applied to bar coverage of the Glidewell Action.


9th Circuit Affirms “No Conceivable Theory” Where Claims Arising Out of California’s Song-Beverly Act are Covered Under Liability Policies

Tressler attorneys David Simantob and Elizabeth Musser handled this matter for Hartford in the District Court and as part of a team in the 9th Circuit.

In Big 5 Sporting Goods Corp. v. Zurich American Ins. Co., et al., Case No. 13-56249 (9th Cir. Dec. 7, 2015), the U.S. Court of Appeals for the 9th Circuit held that insurers had no duty to defend Big 5 Sporting Goods Corporation (Big 5) in connection with ZIP code collection cases brought under California’s Song-Beverly Act.

Eleven underlying class action lawsuits alleged that Big 5 violated customers’ privacy rights by collecting ZIP code information in connection with credit card transactions, a violation of the Song-Beverly Act of 1991 (California Civil Code section 1747, et seq.). Big 5 argued that the underlying actions were covered under general liability insurance policies issued by Hartford Fire Insurance Company (Hartford) and Zurich American Insurance Company (Zurich), which provided coverage for publication of material that violates a person’s right of privacy. However, the Hartford and Zurich policies each included statutory violation exclusions barring distribution of material in violation of federal or state statutes. The Hartford policy contained an additional exclusion eliminating coverage for the alleged "violation of a person’s right of privacy created by any state or federal act."

Big 5 attempted to argue that there were invasion of privacy claims separate and apart from any Song-Beverly Act ZIP code violations. However, the 9th Circuit concluded that "in garden variety ZIP Code cases like these, such extra Song-Beverly Act privacy claims simply do not exist." It reasoned, "California does not recognize any common law or constitutional privacy right causes of action for requesting, sending, transmitting, communicating, distributing or commercially using ZIP Codes." Because the 9th Circuit found "the only possible claim is for statutory penalties, not damages[,]" the court held that the insurer’s exclusionary language encompasses violations of the Song-Beverly Act "as well as any act or omission that arises directly or indirectly from an alleged violation of that law."

The court’s opinion further acknowledged that Big 5’s "claims" under a negligence theory also lacked merit. The court cautioned, "under settled California law, they are not even recognized as cognizable causes of action, a status one step below ‘unmeritorious.’ Allowing Big 5’s fact pattern to rise to the level of a claim would require an insurance company to insure and defend against non-existent risks."

Tressler Comments

In this opinion, the 9th Circuit recognized that an insurer’s "duty to defend groundless actions applies only to claims covered by the policy." It stated that even though an insurer may have a duty to defend "a loser" claim, it does not have any such duty against a claim that is "plainly not covered because of an exclusion." Here, the plain language of the two different statutory violation exclusions applied to eliminate coverage for any statutory invasion of privacy claims as alleged in the underlying lawsuits.


If you have any questions concerning this Alert, please contact:

David Simantob, Partner | 310.203.4862 | dsimantob@tresslerllp.com

Elizabeth L. Musser, Partner | 310.203.4855 | emusser@tresslerllp.com

Linda Tai Hoshide, Partner | 310.203.4816 | lhoshide@tresslerllp.com

Kimberly Sou, Associate | 310.203.4817 | ksou@tresslerllp.com

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